With Corporate America returning some of its cash hoard back to shareholders, dividend exchange traded funds have become a popular investment strategy, but investors can also consider a fund that tracks buyback stocks.
Year-to-date, the ETF has gained 15.7% compared to the 11.7% increase in the S&P 500. Stock components in the Powershares ETF are slightly less volatile than the S&P 500, and the ETF has consistently beaten the broad index.
PKW tries to reflect the performance of the NASDAQ Buyback Achievers Index, which is comprised of stocks that have repurchased at least 5% of their total shares outstanding over the past year and is weighted by market cap.
According to Ford Research, the creator of the underlying Buyback index, companies that repurchased over 5% of their stocks in the past 12-months outperformed the S&P 500 Index in 24 of the 28 years between 1975 and 2003.
Through buybacks, companies are able to boost valuations by increasing earnings-per-share.
Wathen also notes that PKW has beaten the total returns found in dividend funds. The buyback fund saw a 3- and 5-year return of 59% and 57%, respectively, compared to the 45% 3-year and 47% 5-year total return for the SPDR S&P Dividend ETF (NYSEARCA:SDY).
PowerShares BuyBack Achievers Portfolio
Max Chen contributed to this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.