CHICAGO (Reuters) – Public companies share the wealth with shareholders in a number of ways. Sometimes they channel profits into quarterly dividends. They can also buy back their own shares.
Corporations have been on a buyback binge in recent years. S&P 500 companies purchased $118 billion of their stock in the second quarter of this year, up 18 percent from the first quarter, according to S&P Dow Jones Indices. (During the second quarter of 2012, companies bought back $111 billion.)
Although the merits of buybacks are hotly debated among analysts, they often can be beneficial for investors. A small group of exchange-traded funds are capitalizing on this trend. In a bull market, companies that buy their own stock on the cheap can benefit when the overall market is rising.
One of the largest funds in this miniscule group is the PowerShares Buyback Achievers Portfolio Exchange-Traded Fund, with more than $2 billion in assets. The fund’s strategy of investing in mostly large-cap stocks that have “effected a net reduction of shares outstanding of five percent of more in the past 12 months” has paid off handsomely.
During the past year through November 29, the fund has returned about 42 percent, compared to the 30-percent gain by the S&P 500 Index. The fund, which charges 0.71 percent in annual expenses, has beaten the index by five percentage points during the past three- and five-year periods.