The debate over stock buybacks -- good for shareholders, bad for shareholders -- is as old as the practice itself.
A company may choose to repurchase shares of its own stock because it believes that the prices are depressed. Or it may do it to make its "numbers" look better, since the E in P/E is based on the number of outstanding shares in existence.
So, stock buybacks may be great for stockholders if the company's motivation is to make the best use of cash. Conversely, weaker companies may be looking for ways to cover up lousy fundamentals.
As a whole, however, the market does tend to see stock repurchasing/buyback as a positive. The fact that Standard & Poor's recently reported that third-quarter buybacks by
companies were 44% greater than for the second quarter seems to lend credence to the idea that CEOs believed their share prices were quite low.
Can an ETF investor get in on the buyback phenomenon? The
PowerShares Buyback Achievers Portfolio
tracks a Buyback Achievers Index.
For a company to become eligible for the index, the company must be a U.S. company trading on a U.S. exchange. Most importantly, the company must have repurchased at least 5% of its outstanding shares over the prior 12 months.
Performancewise, the fund has shown an ability to outmuscle benchmarks like the S&P 500 and the
Russell 3000 Value
. There's been slight outperformance over the last three years since PKW began trading, with more impressive year-over-year results.
The PowerShares Buyback Achievers Portfolio demonstrates performance potential. It also boasts better "fundamentals" than many ETFs trading at the moment.
At the same time, I am concerned about "trade-ability." With only $35 million in assets and an average volume of just 6,000 shares, PKW may be difficult to enter and exit at a price point that you would like.
If you'd like to learn more about ETF investing, tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.
Gary A. Gordon, MS, CFP is the president of Pacific Park Financial, Inc. He has more than 20 years' experience as a personal coach in money matters, including risk assessment, small business development and investment. Gordon is often asked to consult as an educator. He has taught financial concepts in Mexico, Singapore, Hong Kong and Taiwan. He also wrote the draft copy for a McGraw-Hill publication, Maverick Investing. Gordon hosts "In the Money with Gary Gordon" on San Diego's 1700 AM and writes commentary for the International Business Times as well as TheStreet.com.