This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

New PowerShares ETF Adds International Spin to Buyback Strategy

NEW YORK (TheStreet) -- Last week we looked at the success of the PowerShares Buyback Achievers Portfolio (PKW), which has a market value of nearly $3 billion and has soundly outperformed the S&P 500 during the current bull market.

Now exchange-traded fund provider PowerShares is trying to build on that success with an international version of that ETF: the PowerShares International Buy Back Achievers Portfolio (IPKW).

The new fund adds to PowerShares' lineup of 40-plus smart beta funds. Smart beta funds typically take a broad-based index and then screen it for specific fundamental or qualitative factors in order to boost performance.

These two PowerShares funds screen for companies that have bought back enough of their own stock so as to reduce the number of shares outstanding by at least 5% over the past year.

The basic argument for owning shares of companies that buy back their own shares is that companies must generally be in good financial condition in order to execute buybacks. Buybacks are viewed as a returning of capital to shareholders because a reduced share count increases the earnings per share of the remaining shares and potentially leaves more capital available for dividends.

Although many of the stocks in PKW are large-cap household names such as Pfizer (PFE) or Directv (DTV), that is not the case with IPKW. Each of the top 10 holdings in IPKW are mid-cap and small-cap stocks.

It is also worth noting that the new international fund has only 41 holdings, vs. 177 for PKW. This means IPKW takes more single-stock risk. Nine of the companies in IPKW have weightings of 4% to 5%, vs. just four in PKW.

Japan has the largest country weighting, at 29%, followed by the U.K., at 22%, and Denmark and Canada, with 8% each.

The sector makeup of IPKW is more balanced than PKW, with a still large 28% in financials and weightings in the midteens in consumer discretionary, consumer staples and materials.

With PKW, there's the question of whether its outperformance during the five-year bull market is less a factor the qualitative factor of buybacks and was more a function of its huge exposure to the consumer discretionary sector, which currently is up 35% vs. just 12.4% for the S&P 500. PKW is up 225% in the bull market compared to 150% for the S&P 500 but the Consumer Discretionary Select Sector SPDR (XLY) was up 272%.

The balanced sector allocation of the international fund will be a truer test of the validity of the buyback strategy. It is still in the early innings of the smart beta trend, and there are bound to be some funds that do work out, some that don't. For now it is too early for any definitive conclusions.

At the time of publication, Nusbaum had no positions in securities mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
IPKW $27.18 0.53%
PKW $47.68 0.27%
AAPL $118.05 -0.70%
FB $105.39 -0.33%
GOOG $748.82 0.07%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs