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Bet On Record Trillion-Dollar Share Buyback With These ETFs

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The S&P 500 companies repurchased a record $178 billion worth of their own stocks during the first quarter of 2018, per the S&P Dow Jones Indices data. The number accounted for about 94% of companies’ share buyback plan and easily outpaced the previous peak of $172 billion set more than a decade ago, in the third quarter of 2007.

Considering 100% of the repurchase plan, first-quarter buybacks could possibly reach $186 billion, putting S&P 500 companies on track to return shareholders over $1 trillion for the first time in history, through dividends and buybacks, for this year.

The technology sector, accounting for 32.4% of buybacks in the first quarter, is leading the pack with more-than-doubled share repurchases. The tech giant Apple (AAPL - Free Report) is the biggest contributor spending $23.5 billion in buying back shares in the first quarter of 2018 -- the biggest quarterly buyback in U.S. corporate history. The iPhone maker also announced an additional massive share buyback program to the tune of $100 million to be completed during the fiscal third quarter (read: ETFs to Buy Post Apple's Strong Q2 Result).

President Donald Trump’s massive $1.4-trillion tax cut has no doubt prompted companies from almost every sector to not only boost their dividends, but also accelerate share buyback program. The new tax law encourages the companies to bring the cash back home at much more reduced rates and distributes part of it to shareholders. Notably, American companies were sitting with approximately $1.6 trillion in cash and cash equivalents at the end of the first quarter.

In addition to tax savings, stronger earnings are also providing boost to the share buyback program.

That said, investors seeking to take advantage of the trillion-dollar share buyback should bet on any of these four ETFs:

SPDR S&P 500 Buyback ETF

This fund focuses on the 101 top companies on the S&P 500 with the highest buyback ratio in the last 12 months. It follows the S&P 500 Buyback Index, charging investors 35 bps in annual fees. From a sector look, financials and consumer discretionary take the largest share with 26.7% and 23.9% allocation, respectively, while information technology and industrials round off the next spots. The product has a lower AUM of $15.9 million and trades in a paltry volume of around 3,000 shares a day on average.
PowerShares Buyback Achievers Portfolio (PKW - Free Report)     

This ETF 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. It holds 131 stocks in its basket and charges a higher annual fee of 63 bps. Here also, financials and consumer discretionary are the top two sectors, with nearly 29% share each, closely followed by healthcare (12.4%). PKW is the popular fund in the buyback space, managing an asset base of nearly $1.3 billion and trading in an average daily volume of 67,000 shares (read: Profit From Share Buyback Boom With These ETFs).

AdvisorShares Wilshire Buyback ETF

This is an actively managed fund that seeks to generate long-term capital appreciation by investing in stocks with liquidity and fundamental characteristics that are historically associated with superior long-term performance. This approach results in a basket of 103 securities with financials and consumer discretionary as the top two sectors accounting for 23% and 19% of assets, respectively. The product has amassed $101.8 million in its asset base while sees low volume of nearly 5,000 shares a day. The fund charges 90 bps in annual fees.

iShares U.S. Dividend and Buyback ETF (DIVB - Free Report)

This fund offers exposure to a broad basket of 379 U.S. companies that return capital to shareholders by paying dividends or buying back their stock. Information technology, financials, health care, consumer discretionary and industrials are the top five sectors with double-digit exposure each. The ETF has accumulated $7.8 million within six months of debut. It trades in a paltry volume of around 5,000 shares a day on average and charges 25 bps in annual fees (read: How Will Tax Reform Affect Buyback and Dividend ETFs?).

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