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.
SEE MORE: BuyBack ETFs Underperform in Low-Growth, Low-Rate Environment
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]Investors who want to target U.S. companies that allocate more toward capital expenditures may also take a look at the Elkhorn S&P 500 Capital Expenditures Portfolio (NasdaqGM: CAPX), which focuses on those companies that are diligently reinvesting in their businesses to increase market share and competitive moat.
Specifically, CAPX takes the top 100 S&P 500 companies based on efficient capital expenditure as a way to track U.S. firms that have reinvested their money toward meaningful growth and innovation, including top components like Mallinckrodt (NYSE: MNK) 1.25%, Biogen (NasdaqGS: BIIB) 1.25%, Chesapeake Energy (NYSE: CHK) 1.22%, The Williams Companies (NYSE: WMB) 1.19% and United Rentals (NYSE: URI) 1.11%.
The fund includes a larger 22.0% tilt toward the financial sector, along with 18.0% tech, 17.5% health care, 14.7% consumer discretionary 9.3% energy, 8.0% industrials, 5.7% consumer staples, 3.0% materials 1.0% telecom and 0.9% utilities.
CAPX has gained 8.8% year-to-date.
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