Corporate America has fueled years of stock repurchases, and investors have finally had enough, opting for companies that have employed cash toward high capital expenditures and bolstering a capex-themed exchange traded fund.
The extended low-rate environment in the wake of the financial crisis has encouraged Corporate America to heavily borrow and add value to share prices in the form of stock buybacks.
However, the buyback strategy has underperformed as investors looked to yield-generating assets this year. For instance, Goldman’s proprietary buyback basket, which is comprised of stocks with the highest share repurchases over the past four quarters, has lagged the wider market this year, bucking an historic trend of buyback friendly companies outperforming on an annual basis.
Meanwhile, investors have rewarded firms with high capital expenditure, or capex, levels. For example, Goldman’s sector-neutral basket of stocks with the highest capex and research and development returned 12% this year through the end of July, compared to a 7% gain in the S&P 500, reports Ellie Ismailidou for MarketWatch.[related_stories]