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.
David Kostin, Goldman Sachs Group Inc.’s chief U.S. equity strategist, argues that the volume of company buybacks in the last few months of the year could be enough to salvage an annual gain for the S&P 500 Index.
Kostin pointed out that the fourth quarter is the year’s busiest three-month period for S&P 500 stock repurchases, making up 30% of buybacks. In contrast, only about 18% of repurchases occur during the first quarter, 25% in the second and 26% in the third.
“Buybacks represent the single largest source of demand for U.S. equities,” Kostin said, adding that he expects companies in the index to spend more than $600 billion this year on their own shares. “The typical year-end surge in buyback activity could help boost the market above our year-end target.”
ETF investors who are interested in the buyback theme as a way to bolster shareholder returns have a few options available. For instance, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) includes U.S. companies that have effected a net reduction in shares outstanding by 5% or more over the trailing 12 month period. PKW has declined 8.0% year-to-date.
Additionally, the TrimTabs Float Shrink ETF (NYSEArca: TTFS) and the Cambria Shareholder Yield ETF (NYSEArca: SYLD) both include companies that return capital to shareholders through stock repurchases. Year-to-date, TTFS dipped 5.0% and SYLD dropped 5.2%.
These buyback-related ETFs could continue to perform as corporations set more money aside to repurchase shares.
For more information on stock buybacks, visit our buyback ETFs category.
Max Chen contributed to this article.
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.