As companies plan to repurchase their own shares at a record pace, investors can capitalize on the theme through exchange traded fund strategies that focus on the stock buybacks.
According to data from Goldman Sachs Group Inc., S&P 500 companies have outlined plans to buy back about $238 billion in their own stocks through the first two months of 2022, a high for this point in the year, the Wall Street Journal reports.
Many companies seem to be capitalizing on the volatility that has sent stocks reeling. The equity markets have come under pressure on concerns over inflation and the pace of the Federal Reserve’s tightening monetary policy, Russia’s invasion of Ukraine, and a surge in commodity prices that could stall global economic growth.
“Companies have created, in the last six to twelve months, something of a fortress in their balance sheets,” Jessica Bemer, portfolio manager at Easterly Investment Partners, told the WSJ. “They’re able to defend their company in a way that gives us some comfort as we move through the uncertainty.”
Meanwhile, repurchasing company stocks could help firms shore up the value of their shares and bolster investor sentiment, since the action reflects optimism over their own companies’ future prospects and confidence in their finances.
“It does add a layer of overall support during periods of volatility,” Anthony Saglimbene, global market strategist at Ameriprise Financial, told the WSJ.
The big names that have already announced plans to repurchase company stocks include Union Pacific Corp. (UNP), PepsiCo Inc. (PEP), Linde PLC, Amazon.com (AMZN), Colgate Palmolive Co. (CL), and Best Buy Co. (BBY), among others.
Goldman analysts have raised their 2022 projections on buybacks to a record $1 trillion, or a 12% increase year-over-year when repurchase activity helped support the S&P 500 to a 27% gain. The analysts added that the breadth of buyback activity is near historic highs, with double the typical figure.
As more companies look to add value through share repurchases, ETF investors can also capitalize on the potential opportunity through buyback-themed 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 Invesco Buyback Achievers ETF (NYSEArca: PKW).
PKW includes a broader selection of U.S. companies that have affected a net reduction in shares outstanding by 5% or more in the trailing 12 months.
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