Share repurchases by U.S. companies are reaching a fevered pitch, and that could be the delight of investors engaged with the Invesco BuyBack Achievers ETF (PKW ).
PKW is topping the S&P 500 on a year-to-date basis and is positioned to benefit from a flurry of buyback activity. The Invesco exchange traded fund follows the NASDAQ US BuyBack Achiever Index. Admittance into that benchmark doesn’t come easily. The index requires member firms to reduce shares outstanding counts by 5% over the trailing 12 months. Some companies may be eligible to join PKW when the fund next rebalances.
“Corporate America bought back $3.4 billion worth of its own stock, twice the level from the previous week and reaching the highest measure since March, according to client activity compiled by Bank of America Corp.’s research team,” reports Lu Wang for Bloomberg.
That figure references last week’s buyback activity, and while it’s just one week, it does paint the picture of companies returning capital to shareholders via repurchases. Market experts were surprised by the recent surge in buybacks because there’s speculation that politicians will look to tax repurchase activity to partially fund new government spending.
“The spike in buybacks came as a surprise to BofA strategists Jill Carey Hall and Savita Subramanian, especially at a time when lawmakers are considering a tax levy on corporate repurchases to help fund a boost in government spending,” according to Bloomberg.
Buyback activity slumped last year during the coronavirus pandemic as companies prioritized hoarding cash over boosting shareholder rewards. That’s in line with historical trends of companies often scaling back on buybacks when stock prices are low. On that note, the recent spate of repurchases is encouraging because equities slumped in late November and during the first week of this month. Buyback activity in 2021 is encouraging, as it resides at an estimated $1.1 trillion.
“To many equity bulls, the return of buybacks is a big antidote to market scares over the withdrawal of Federal Reserve monetary stimulus and the emergence of a new Covid-19 variant,” adds Bloomberg.
The $1.46 billion PKW provides investors with a broad, accurate representation of where buybacks are booming at the sector level. For example, the fund devotes roughly 65% of its total weight to financial services, technology, and healthcare sectors, in that order. PKW also has a slight value feel, as over 52% of its components are classified as value stocks. That compares with about 8% in the growth category.
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