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Here's One Buyback Strategy That Outperforms

By  |  Stock Markets  |  Nov 25, 2012 07:42AM GMT  |   Add a Comment
 
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In this week's Barron's an article, Beware the Buyback ETF Strategy ($), appears stating "there's precious little evidence that share repurchases do much for long-term investors." In fact, this could not be further from the truth.

One of the more popular buyback ETFs is the PowerShares Buyback Achievers Portfolio (PKW) I have written articles on this index as recently as October of last year. In that article, Companies Buying Back Shares Are Outperforming, the buyback index was significantly outperforming the broader market. Year to date, the Buyback Index is only slightly trailng the S&P 500 Index, 11.46% versus 12.05%, respectively. A large part of this minor underperformance is the absence of Apple (AAPL) in the buyback index.

Pkw Top 10 10 31 2012
Pkw Top 10 10 31 2012

On a 2-year basis though, the buyback index is up 26.80% versus the S&P 500 Index return of 19.35%.

PKW Daily
PKW Daily

In addition to the buyback index outperforming over longer periods than a year, the buyback index is less volatile. The 3-year standard deviation of PKW is 14.37% versus the S&P 500 Index standard deviation of 15.54%. Additionally, the buyback index experienced a smaller maximum drawdown in all time periods for 1, 3 and 5 years as of 10/31/2012.

For investors then, if you are allocating dollars based on a long term strategy, focusing on companies that buy back their stock might be a rewarding one.

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