U.S. companies have only just begun to repatriate more than $2 trillion cash stored abroad. As Corporate America repatriates their foreign revenue, investors turn to buyback exchange traded funds that could capitalize on increasing stock repurchases.
In an attempt to avoid hefty U.S. taxes, companies have hoarded billions of dollars in overseas profits, but the recent U.S. tax overhaul lowered the tax rate on repatriating overseas cash to entice companies to bring their foreign money stores back home.
According to J.P. Morgan, U.S. companies repatriated about $217 billion in the first quarter, or 10% of the calculated $2.1 trillion believed to be sitting overseas, the Wall Street Journal reports. J.P. Morgan also projected U.S. companies could eventually bring home over $400 billion in overseas earnings.
As these multinational companies bring home the money, analysts predict the money could find its way back to shareholders.
Record Buybacks in Q1
In the first quarter, companies have already spent a record $189 billion on buybacks, an increase of about $50 billion from the fourth quarter. Technology giants, like Apple, Alphabet and Microsoft, that have huge foreign cash stockpiles also announced plans to raise returns to shareholders through buybacks and dividends.
Consequently, as more companies look to add value through share repurchases, ETF investors can also capitalize on the potential opportunity through buyback-centric ETF strategies.
For instance, ETF investors who believe in a rise in share repurchases can look to ETFs that specifically target companies that implement buyback schemes, including the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), the SPDR S&P 500 Buyback ETF (NYSEArca: SPYB) and more recently launched iShares U.S. Dividend and Buyback ETF (Cboe: DIVB).
Related: ETFs to Capture Increasing Buyback Activity
PKW includes a broader selection of U.S. companies that have effected a net reduction in shares outstanding by 5% or more in the trailing 12 months. SPYB focuses on S&P 500 companies with the highest buyback ratio in the past 12 months. Lastly, DIVB is comprised of U.S. stocks with a history of dividend payments and or share buybacks where holdings include those with the largest dividend and buyback programs in the market measured by dollar value,
For more information on the buybacks strategy, visit our buybacks category.