Buyback ETFs Could Strengthen as Companies Buy Back on the Cheap
This article was originally published on ETFTrends.com.
With the U.S. stock market dipping into correction territory, Corporate America could step in and buy back their own shares on the cheap, potentially bolstering ETFs that focus on the share buyback strategy.
According to Goldman Sachs, the market sell-off is "overdone" and will be partially offset in part by companies returning to share repurchases as fundamentals still underpin values, CNBC reports.
"The recent sell-off has priced too sharp of a near-term growth slowdown," David Kostin, Goldman's chief U.S. equity strategist, said in a note to clients. "We expect continued economic and earnings growth will support a rebound in the S&P 500."
Goldman Sachs also predicts the market strengthening close to 6% over the next two months, with buybacks helping to support the gains.
According to FactSet data, 48% of S&P 500 companies have reported quarterly earnings, revealing earnings up 22.5% for the same period year-over-year. However, some have expressed concerns over the future outlook in the late economic business cycle, especially the impact of tariffs and rising rates will have on growth.
"But not all assets are pointing to an imminent economic downturn," Kostin said, adding that corporate credit spreads also have not widened to an extent that would indicate a slowdown.
Looking ahead, Goldman projects total company share repurchases this year to be about $1 trillion, which could support the bank's 2,850 price target for the S&P 500 - the S&P 500 benchmark was up 1.4% to 2,678 Tuesday.
As more companies look to add value through share repurchases, ETF investors can also capitalize on the potential opportunity through buyback-themed ETF strategies.
For instance, ETF investors who believe in a rise in share repurchases can look to ETFs that specifically target companies that implement buyback schemes, including the Invesco Buyback Achievers ETF (PKW) , the SPDR S&P 500 Buyback ETF (SPYB) , iShares U.S. Dividend and Buyback ETF (Cboe:DIVB) and AdvisorShares Wilshire Buyback ETF (TTFS) .
PKW includes a broader selection of U.S. companies that have effected a net reduction in shares outstanding by 5% or more in the trailing 12 months. SPYB focuses on S&P 500 companies with the highest buyback ratio in the past 12 months. DIVB is comprised of U.S. stocks with a history of dividend payments and or share buybacks where holdings include those with the largest dividend and buyback programs in the market measured by dollar value. Lastly, TTFS is comprised of companies that have a reduction in outstanding shares and meet specific leverage and cash flow requirements, weighting components based on Wilshire’s quantitative buyback strength signal.
For more information on the buybacks strategy, visit our buybacks category.
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