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Corporate America is displaying its bullishness on the U.S. economy through a surge in stock buybacks. Over the past 13 weeks, companies have announced repurchases exceeding $383 billion, marking a 30% increase from the same period last year and representing the largest sum since June 2018, according to research from Deutsche Bank, as quoted on Yahoo Finance.
The trend has been bullish for quite some time now. Share repurchases totaled $219.1 billion in Q4 of 2023, up 18.0% from Q3 of 2023's $185.6 billion expenditure, and 3.7% from Q4 of 2022's $211.1 billion. Per Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, companies with strong cashflows went for aggressive buybacks, as the top 20 issues accounted for over 54.1% of the buybacks in Q4 of 2023, higher than the historical average of 47.4%.
The trend of increased buybacks failed to take shape in 2023, despite upbeat earnings, due to widespread projections of a recession. However, with the U.S. economy showing resilience in 2024, corporations are reaffirming this strong sentiment through increased buyback activity.
Broad Participation Beyond Tech Giants
The equity strategy team at Deutsche Bank indicated that the boom in buybacks went beyond tech giants like Apple and Alphabet, which recently unveiled a $70 billion buyback plan. Of the $262 billion in buybacks reported during the first-quarter earnings season, $82 billion came from companies outside the large tech sector. This wide participation is a strong sign of the broader stock market’s wellbeing and an impending rally.
Below, we highlight a few ETFs that could be played on this trend.
In early March, Goldman Sachs boosted its share buyback forecast for companies on the S&P 500 Index, with repurchases likely to rise 13% to $925 billion in 2024, as quoted on Business Today. Increased buyback activities put these pure-play ETFs in focus.
The underlying NASDAQ US BuyBack Achievers Index comprises U.S. securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months. The fund charges 62 bps in fees.
Among the latest spell of activities, Apple's recent announcement of a $110 billion buyback plan stands as the largest in history. In fact, tech companies made up a significant chunk of the latest buybacks. This puts focus on XLK, which is heavy on Apple.
Buybacks are normally seen as a gauge of corporate sentiment toward the company’s health and macroeconomic environment. An increasing buyback trend signifies higher earnings potential and management’s confidence in their cash flow generation. The trend also indicates that the stock valuation is not sky-high at the current level. Hence, with the S&P 500 buybacks turning strong, one can bet on the S&P 500 companies with the fund VOO.
The buyback activity reduces the number of outstanding shares and increases earnings per share. Hence, the fund EPS could be a good pick in this context.
The underlying WisdomTree U.S. LargeCap Index of the fund is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market.
The yahoo Finance article indicated that Elyse Ausenbaugh, a global investment strategist at JPMorgan Private Bank, sees buybacks as part of a broader trend where companies are experiencing higher cash flows and deploying them in ways that boost shareholders’ value. It means buybacks are indications of corporates’ solid/decent cash balances. This puts the spotlight on cash cows.
The underlying Pacer US Cash Cows 100 Index of the fund uses an objective, rules-based methodology to provide exposure to large and mid-capitalization U.S. companies with high free cash flow yields.
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5 ETFs to Play the Burgeoning Corporate Buybacks
Corporate America is displaying its bullishness on the U.S. economy through a surge in stock buybacks. Over the past 13 weeks, companies have announced repurchases exceeding $383 billion, marking a 30% increase from the same period last year and representing the largest sum since June 2018, according to research from Deutsche Bank, as quoted on Yahoo Finance.
The trend has been bullish for quite some time now. Share repurchases totaled $219.1 billion in Q4 of 2023, up 18.0% from Q3 of 2023's $185.6 billion expenditure, and 3.7% from Q4 of 2022's $211.1 billion. Per Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, companies with strong cashflows went for aggressive buybacks, as the top 20 issues accounted for over 54.1% of the buybacks in Q4 of 2023, higher than the historical average of 47.4%.
The trend of increased buybacks failed to take shape in 2023, despite upbeat earnings, due to widespread projections of a recession. However, with the U.S. economy showing resilience in 2024, corporations are reaffirming this strong sentiment through increased buyback activity.
Broad Participation Beyond Tech Giants
The equity strategy team at Deutsche Bank indicated that the boom in buybacks went beyond tech giants like Apple and Alphabet, which recently unveiled a $70 billion buyback plan. Of the $262 billion in buybacks reported during the first-quarter earnings season, $82 billion came from companies outside the large tech sector. This wide participation is a strong sign of the broader stock market’s wellbeing and an impending rally.
Below, we highlight a few ETFs that could be played on this trend.
ETFs in Focus
Invesco BuyBack Achievers ETF (PKW - Free Report)
In early March, Goldman Sachs boosted its share buyback forecast for companies on the S&P 500 Index, with repurchases likely to rise 13% to $925 billion in 2024, as quoted on Business Today. Increased buyback activities put these pure-play ETFs in focus.
The underlying NASDAQ US BuyBack Achievers Index comprises U.S. securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months. The fund charges 62 bps in fees.
Technology Select Sector SPDR ETF (XLK - Free Report)
Among the latest spell of activities, Apple's recent announcement of a $110 billion buyback plan stands as the largest in history. In fact, tech companies made up a significant chunk of the latest buybacks. This puts focus on XLK, which is heavy on Apple.
Vanguard S&P 500 ETF (VOO - Free Report)
Buybacks are normally seen as a gauge of corporate sentiment toward the company’s health and macroeconomic environment. An increasing buyback trend signifies higher earnings potential and management’s confidence in their cash flow generation. The trend also indicates that the stock valuation is not sky-high at the current level. Hence, with the S&P 500 buybacks turning strong, one can bet on the S&P 500 companies with the fund VOO.
WisdomTree U.S. Large-Cap ETF (EPS - Free Report)
The buyback activity reduces the number of outstanding shares and increases earnings per share. Hence, the fund EPS could be a good pick in this context.
The underlying WisdomTree U.S. LargeCap Index of the fund is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. stock market.
Pacer US Cash Cows 100 ETF (COWZ - Free Report)
The yahoo Finance article indicated that Elyse Ausenbaugh, a global investment strategist at JPMorgan Private Bank, sees buybacks as part of a broader trend where companies are experiencing higher cash flows and deploying them in ways that boost shareholders’ value. It means buybacks are indications of corporates’ solid/decent cash balances. This puts the spotlight on cash cows.
The underlying Pacer US Cash Cows 100 Index of the fund uses an objective, rules-based methodology to provide exposure to large and mid-capitalization U.S. companies with high free cash flow yields.