Share repurchases is a means for companies to maximize shareholder value and boost their own shares. It has been one of the most popular tools for keeping Wall Street charged-up in the past few years. But buybacks were under pressure in the coronavirus-rattled economy.
The virus outbreak and the resultant lockdowns in several countries had wreaked havoc on economies and businesses, causing a severe cash crunch. This had led the S&P 500 companies to suspend $190 billion in repurchases in late-March 2020.
In the second quarter of 2020 (the peak of the lockdown period), share repurchases totaled $88.7 billion — the lowest since March 2012 and a 55.4% drop-off from the first quarter of 2020 and 46.4% decline from the second quarter of 2019. For full-year 2020, buybacks were down 28.7% from 2019 and35.6% less than the record $806.4 billion in 2018.
Buybacks Rising in 2021: Q2 at About Record High
The trend has been improving faster for the better. S&P 500 quarterly buybacks are on their toward $200 billion and are now 11% behind from their
all-time high of $223 billion set in Q4 2018. The Q2 of 2021 share repurchases were $198.8 billion, rising 11.6% from Q1 2021’s $178.1 billion of outlays, and up 124.3% from Q2 2020’s recent low of $88.7 billion, per an article published on spglobal.com.
About 294 companies reported buybacks of at least $5 million for the quarter, down from 335 in Q1 2021, and up from 170 in Q2 of 2020. Top 20 issues made up about 55.7% of Q2 2021 buybacks, up from Q1 2021’s 53.3% and up from the pre-COVID historical average of 44.5%.
More Buybacks Ahead?
“Given strong earnings and cash-flow, high expenditures [on buybacks] are expected to continue, with upward EPS impact increasing,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices,
as quoted on the source.
Moreover, with Democrats planning a 2% tax rate on the money companies are deploying to buy back stocks, one can expect a sharp rise in share repurchases near year-end. As programs are being discussed this month, and materialize in October, year-end may see a shoot-up in buybacks, per Howard Silverblatt.
Subdued stock prices at the current level may also encourage companies to buy back their own shares. “Given the current trend, 2021 should easily surpass 2019’s pre-COVID mark of $729 billion, opined Silverblatt.
Against this backdrop, below we highlight a few ETFs that could be in favor in the coming days.
ETFs in Focus Invesco Buyback Achievers Portfolio ( PKW Quick Quote PKW - Free Report)
The underlying NASDAQ US BuyBack Achievers Index comprises of US securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months. The fund charges 62 bps in fees.
Financial Select Sector SPDR Fund ( XLF Quick Quote XLF - Free Report)
Buybacks in the financial sector have been improving. Financial buybacks rose 18.1%, spending $41.8 billion in Q2 2021 making up 21.0% of all buybacks, up from the Q1 2021 $35.4 billion, which accounted for 19.9% of the buybacks. Financial sector buybacks were 401% higher than the Q2 2020 $8.3 billion outlay, when the Fed restricted buybacks.
Communication Services Select Sector SPDR ETF ( XLC Quick Quote XLC - Free Report)
Communication Services boosted buyback expenditures 25.2% to $27.3 billion, from the prior quarter’s $21.8 billion and tad below Q2 2020’s $27.6 billion. As a percentage of all buybacks, the sector was responsible for 13.7% of all buybacks from the prior 12.2%. The 12-month period was $82.9 billion, up from the prior 12-month expenditure of $72.3 billion.
Technology Select Sector SPDR Fund ( XLK Quick Quote XLK - Free Report)
Information Technology buybacks have slowed a bit, though it is still leading on a nominal basis. In Q2 2021, IT’s share was flat at 31.6% of all S&P 500 buybacks compared to Q1 2021, and was down from Q2 2020’s 41.6%, as expenditures rose (11.4%) to $62.8 billion from the prior quarter’s $56.4 billion and was 70.1% higher than the Q2 2020 shell-out of $36.9 billion.