We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The announcement of the U.S. stock repurchases has slumped to a four-year low level as indicated by TrimTabs Investment Research. Share buybacks in the first quarter (February–April) amounted to $166.3 billion – representing a 15.1% year-over-year and a 15.6% sequential gain.
However, TrimTabs noted that at about $1.8 billion a day, “the amount of buyback announcements from U.S. companies during the nearly completed second-quarter earnings season is tracking to the lowest since the same period of 2012, which compared six-week periods during which companies report quarterly results.”
TrimTabs indicated that the total value of announced buybacks through July plunged 21% from the year-ago period. Companies announcing buybacks has also fallen on average to 3.3 a day – which is the bottommost since the third quarter of 2013 and way behind the 6.1-per-day level during the year-ago earnings season.
Why Such Slowdown?
At first glance, this is a pessimistic sign as some analysts believe that corporates are not hopeful about the future of the operating environment or are fearing overvalued stocks. But there is a positive hypothesis as well that “companies are starting to listen to investors and put funds toward other uses”, as per Bloomberg.
Since stock buyback lessens the number of shares outstanding, it in turn pushes up earnings per share and acts as a tailwind for market movement. So, this slowdown in activity could put a cap on the future market rally.
On the other hand, sluggish U.S. business spending has been a cause of concern for long. Now if companies start shelling out extra cash on capital expenditure rather than buying back their own stock, the tendency may do some good to the economy.
Outcome of This Slowdown
No matter whether it gives positive or negative cues, two things are for sure. First, the overall stock market has lost a positive driver and secondly, buyback ETFs may be under pressure.
There are a couple of ETFs that focus on this buyback strategy. PowerShares Buyback Achievers Portfolio (PKW - Free Report) is the most popular fund in the space managing an asset base of $1.47 billion. PKW tracks the NASDAQ US Buyback Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. AdvisorShares Wilshire Buyback ETF and SPDR S&P 500 Buyback ETF are two other products on this theme (see all total Market (U.S.) ETFs).
Any Hopes Ahead?
Having said this, along with many analysts like Goldman we also believe that buyback activity may presently be going through a lackluster phase, but may soon rebound as U.S. companies are sitting on a pile of cash, interest rates are at rock-bottom levels and will help in buying back stocks with inexpensive borrowed money and growth avenues are still feeble to deploy hoarded cash (read: Follow Goldman Sachs' Strategy with These ETFs).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Tough Time Ahead for Buyback ETFs?
The announcement of the U.S. stock repurchases has slumped to a four-year low level as indicated by TrimTabs Investment Research. Share buybacks in the first quarter (February–April) amounted to $166.3 billion – representing a 15.1% year-over-year and a 15.6% sequential gain.
However, TrimTabs noted that at about $1.8 billion a day, “the amount of buyback announcements from U.S. companies during the nearly completed second-quarter earnings season is tracking to the lowest since the same period of 2012, which compared six-week periods during which companies report quarterly results.”
TrimTabs indicated that the total value of announced buybacks through July plunged 21% from the year-ago period. Companies announcing buybacks has also fallen on average to 3.3 a day – which is the bottommost since the third quarter of 2013 and way behind the 6.1-per-day level during the year-ago earnings season.
Why Such Slowdown?
At first glance, this is a pessimistic sign as some analysts believe that corporates are not hopeful about the future of the operating environment or are fearing overvalued stocks. But there is a positive hypothesis as well that “companies are starting to listen to investors and put funds toward other uses”, as per Bloomberg.
Since stock buyback lessens the number of shares outstanding, it in turn pushes up earnings per share and acts as a tailwind for market movement. So, this slowdown in activity could put a cap on the future market rally.
On the other hand, sluggish U.S. business spending has been a cause of concern for long. Now if companies start shelling out extra cash on capital expenditure rather than buying back their own stock, the tendency may do some good to the economy.
Outcome of This Slowdown
No matter whether it gives positive or negative cues, two things are for sure. First, the overall stock market has lost a positive driver and secondly, buyback ETFs may be under pressure.
There are a couple of ETFs that focus on this buyback strategy. PowerShares Buyback Achievers Portfolio (PKW - Free Report) is the most popular fund in the space managing an asset base of $1.47 billion. PKW tracks the NASDAQ US Buyback Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. AdvisorShares Wilshire Buyback ETF and SPDR S&P 500 Buyback ETF are two other products on this theme (see all total Market (U.S.) ETFs).
Any Hopes Ahead?
Having said this, along with many analysts like Goldman we also believe that buyback activity may presently be going through a lackluster phase, but may soon rebound as U.S. companies are sitting on a pile of cash, interest rates are at rock-bottom levels and will help in buying back stocks with inexpensive borrowed money and growth avenues are still feeble to deploy hoarded cash (read: Follow Goldman Sachs' Strategy with These ETFs).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>