Investors should take a look at buyback exchange traded funds as the markets head toward one of the busiest periods of the year for company stock repurchases.
November is the busiest month of the year for buybacks among S&P 500 companies, reports David Wilson for Bloomberg.
About 13% of annual spending occurs during the month of November on average for 2007 and 2009 through 2014, according to Goldman Sachs data.
That could mean the time is right for the TrimTabs Float Shrink ETF (NYSEArca: TTFS), one of the largest and most successful equity-based actively managed ETFs.
“What makes TTFS attractive is that its focus extends beyond buybacks. While share count reduction is an integral part of the fund’s methodology, the TTFS management team also considers how a company is funding its buybacks and its ability to generate free cash flow,” reports TheStreet.com.
The free cash flow is the leftover cash after accounting for operating expenditures, research and development, capital expenditures and new business ventures, along with adding back depreciation and non-cash charges.
The free cash flow yield, or a company’s free cash flow divided by market capitalization, provides a strong indicator of balance sheet strength and a company’s current cash flow positions. Typically, investors would want to look for companies with high cash flow percentage, which reflects higher cash flow with the same underlying valuation.
Incidentally, 57 of TTFS’s holdings have been acquisitions targets, which helped bolstered overall returns. The interest suggests that buyers enjoy acquiring firms with tidy balance sheets. On average, 1.3 TTFS holdings per month have been acquired since the ETF launched. [Looking for International Cash Generators? This ETF Has Them]
Corporate America has been holding on to cash in the years following the financial crisis and have recently put that money to work through shareholder-friendly programs, like dividends and buybacks, which have helped fuel the multi-year rally and supported valuations through reducing open shares. By some estimates, buybacks among S&P 500 member companies could reach a record this year. [A Selective Approach to Buyback ETFs]
TrimTabs Float Shrink ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.