Inside the New International Buyback Achievers ETF - ETF News And Commentary
March 04 2014 - 2:00PM
Zacks
Thanks to higher dividend tax rates and a lack of other good
investing options, companies are continuing to pour money into
share buybacks. This corporate tool helps to boost EPS, and
hopefully assists in further increasing the share price (due to the
reduction in the supply of shares) as well.
The technique does have some merit too, as the
PowerShares
Buyback Achievers ETF (PKW), which follows companies that
have bought back at least 5% of their outstanding stock over the
past 12 months, has easily beaten out the market. In fact, over the
past 12 months PKW has added over 33%, compared to a 21% gain for
the S&P 500 in the same time frame, while the fund possesses
over $2.6 billion AUM too (see Apple Stock Repurchases Puts Buyback
ETF in Focus).
Due to this level of outperformance and the broad based interest
from investors, it shouldn’t be too surprising to note that
PowerShares has just added an international version of PKW. This
new fund, the
PowerShares International Buyback Achievers
ETF, trades under the symbol of
IPKW, and we have highlighted some of the key
details below for investors looking to take a global approach to
buybacks in their portfolios:
IPKW in Focus
This ETF looks to track the NASDAQ International BuyBack Achievers
Index, a benchmark of common stocks of foreign companies that have
seen a net reduction in shares outstanding of 5% or more in the
latest fiscal year. The fund and index are reconstituted annually
in July and rebalanced quarterly, while the product charges 55
basis points a year in fees for this exposure.
The portfolio only contains about 40 securities in its basket,
though it does a solid job of spreading out assets. Financials
(28.3%), consumer discretionary (15.7%), and consumer staples
(14.4%) take the top three sector spots, leaving little for
industrials and telecoms. Meanwhile, from a nation look, Japan
(28.8%) and the UK (22.5%) dominate, though Denmark and Canada each
take up more than 8% too.
This initial portfolio reading suggests that certain
countries—thanks to tax and buyback rules—may dominate the
portfolio. Additionally, some sectors might be more prone to this
process than others, potentially leaving certain segments on the
outside of this fund. Still, the method clearly has some data to
back it up, especially given how well the domestic version of the
fund has performed in recent trading (see 5 ETF Predictions for
2014).
“The buyback methodology is generally more tax-efficient relative
to dividend payments and may provide investors enhanced total
shareholder return,” said Lorraine Wang, Invesco PowerShares global
head of ETF products and research in a press release. “The merits
of the BuyBack Achievers methodology, and more broadly smart beta,
are demonstrated in our US-focused flagship product PowerShares
BuyBack Achievers (PKW), so we are excited to provide investors a
way to participate in global opportunities as well.”
Bottom Line
IPKW is undoubtedly looking to cash in off of the incredible
success that has been seen in the U.S.-focused buyback achievers
ETF. Not only has PKW crushed the market, but it has also
accumulated its fair share of assets in the process too (read Best
ETF Strategies for 2014).
The real test for IPKW will be if a decent number of foreign
companies engage in buybacks as the current portfolio is quite
small compared to what we see in the U.S. market. However, if this
doesn’t become a problem for this new ETF, the fund may become an
interesting choice for investors seeking a fresh way to play
international markets.
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PWRSH-INT BB AP (IPKW): ETF Research Reports
PWRSH-BYBK ACHV (PKW): ETF Research Reports
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