When a company engages in repurchasing plans, it is giving up potential growth. Management could have used the money for more practical applications, such as research and development or new products.
“Buyback as an investment strategy lagged in 2014 and 2015. I believe this was primarily because of market conditions. The NASDAQ US Buyback Achievers Index tilts toward the value and small-size factors because buyback is a form of value investing, while the companies meeting the buyback threshold of 5% tend to be less concentrated in size than a market-cap-based index like the S&P 500 Index,” according to PowerShares.
PKW devotes half its combined weight to industrial and financial services stocks.
Foreign markets are also experiencing record low or negative interest rates. Consequently, investors who believe other markets will follow the lead of the U.S. and engage in massive share repurchases could be good news for the PowerShares International BuyBack Achievers Portfolio (NASDAQ: IPKW), the international equivalent of the wildly popular PKW.
For more information on the stock repurchases theme, visit our buybacks category.