Earlier this week, Goldman Sachs said all that is left to boost the S&P 500 is dividends and buybacks. Time will tell if that proves accurate, but investors can easily prepare for a raft of increased share repurchases with several exchange traded funds.
According to Birinyi Associates, large companies executed a record $141 billion in buybacks in April, the highest monthly amount ever, reports Anora Mahmudova for MarketWatch. Birinyi Associates also pointed out that U.S. companies have already announced $398 billion in repurchases, the strongest start to any year ever.
In 2014, U.S. companies spent $679.5 billion on buybacks, and if the current pace of share repurchases continues, S&P 500 companies are set to exceed previous records. Birinyi expects buybacks to hit $1.2 trillion this year, compared to the previous record of $863 billion in 2007, reports Dan Strumpf for the Wall Street Journal. [Buyback ETFs: Companies Fueling Their Own Stock Growth]
The SPDR S&P 500 Buyback ETF (NYSEArca: SPYB), which debuted in February, is the newest entrant to the buyback ETF group. As is the case with other ETF niches, the buyback group is competitive, but SPYB merits consideration by investors looking to take advantage of Corporate America’s rising cash hoards and buyback addiction.
SPYB tracks the S&P 500 Buyback Index, which “provides exposure to the 100 constituent companies in the S&P 500 with the highest buyback ratio in the last 12 months. The buyback ratio is defined as the ratio of the total cash put towards buybacks in the trailing year and the market capitalization of the company as of a reference date,” according to a statement issued by SSgA.
The index is equally-weighted and rebalanced quarterly. If a company is removed from the S&P 500, it also departs the S&P 500 Buyback Index.
As is the case with rival buyback ETFs, SPYB features large allocations to the consumer discretionary and technology sectors. Those sectors combined for 46.6% of the ETF’s weight as of May 20, according to SSgA data.
The nearly 21.2% weight to tech companies is noteworthy at a time when four of the five largest cash stockpiles in Corporate America, including Apple (NasdaqGS: AAPL), hail from the tech sector. At the end of last year, Apple had $178 billion in cash and marketable securities, but that number has since grown to $194 billion and the company recently said it is increasing its buyback program. Apple is just over 1% of SPYB’s weight. [ETFs for Cash Rich Firms]
SPYB’s 14.3% weight to the financial services sector is larger than that of some of its rivals. Like the tech exposure, SPYB’s financial services weight is notable because as the health of that sector increases, regulators are green-lighting increased shareholder rewards.
SPDR S&P 500 Buyback ETF
