Fund seeks to cash in on companies with high share buyback ratios
State Street Global Advisers has released the SPDR S&P 500 Buyback ETF, an exchange-traded fund designed to help investors gain exposure to and track large-cap US companies that conduct the most buyback activity.
The asset management firm says the ETF, which trades under the symbol SPYB on the NYSE Arca, aims to track the 100 companies with the highest buyback ratios in the S&P 500 Buyback Index over the last 12 months.
According to FactSet data, companies in the S&P 500 spent $567 bn on share buybacks in the 12 months to the end of the third quarter of 2014, an increase of 27 percent over the previous year. Around 75 percent of index members ‒ 374 companies ‒ bought back shares during the period.
Top holdings in the ETF include Southwest Airlines, Lowe’s, Yahoo!, Texas Instruments, Dollar Tree and other companies that have been prolific in buying back their own shares over the past year. The companies are selected based on their buyback ratio: the amount of cash spent on buybacks as a proportion of their overall market capitalization.
‘Companies that buy back their own shares have established a long-term track record of outperforming their peers in both up and down markets,’ says James Ross, executive vice president and global head of SPDR ETFs at State Street, in a press release. ‘SPYB helps investors access a diversified buyback portfolio to capture this return stream and complement any existing dividend strategies.’
State Street says share buybacks have surpassed cash dividends in recent decades to become the top form of payout from companies in the US. The firm says that between 1980 and 2013 the number of dividend-paying companies dropped to 40 percent from 78 percent while the number of companies carrying out buybacks rose to 43 percent from 28 percent.
