BuyBack ETFs Underperform in Low-Growth, Low-Rate Environment

Company buybacks have helped support the stock market rally since the financial downturn, but the gimmick may be running out of steam, with exchange traded funds that focus on the buyback strategy underperforming.

Year-to-date, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), the largest buyback ETF, rose 4.5% and the SPDR S&P 500 Buyback ETF (NYSEArca: SPYB) gained 6.2%, whereas the S&P 500 Index increased 7.7%.

“Investors have rewarded buybacks for many years but the pattern has reversed in 2016,” according to the Goldman Sachs Group team, led by Chief U.S. Equity Strategist David Kostin, Bloomberg reports.

SEE MORE: ETF Investors Look to Dividend Payers Over Buybacks

Goldman’s proprietary buyback basket, which is comprised of stocks with the highest share repurchases over the past four quarters, has underperformed the wider market this year, bucking an historic trend of buyback friendly companies outperforming on an annual basis.

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.