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Float Shrink ETF Capitalizes on Market Shrinkage


The shifting demand and supply of stock market shares help drive prices, but investors can focus on just the ones that see their tradeable float shrink through exchange traded funds.

Float shrink refers to the strategy for reducing or “shrinking” total shares trading on the market through company stock buybacks, insider buying or when demand outstrips supply. The float is typically calculated by taking restricted stock from the total outstanding stock, reports Jeff Benjamin for InvestmentNews.

For instance, the actively managed the AdvisorShares TrimTabs Float Shrink ETF (TTFS) , which recently topped $100 million in assets, has been a popular way to gain exposure to the float shrink strategy. TTFS is up 29.8% over the past year. [Float Shrink ETF Tops $100M in Assets]

TTFS does not focus solely on companies engaged in share buybacks. Sub-advised by TrimTabs Asset Management, TTFS is an equal-weight fund that focuses on Russell 3000 companies that have reduced their shares outstanding over the prior 120 days. The ETF’s holdings are selected based on three primary criteria: Shareholder friendliness via float shrinkage, profitability measured by free cash flow and balance sheet sturdiness measured by leverage ratio. But the main selling point is the float and principal of supply and demand.

“This is information that is not widely used,” portfolio manager Minyi Chen of Trim Tabs Asset Management said in the article. “Fundamentally, it just makes sense.”

Investors may be interested in a couple other products that track similar themes. For example, the PowerShares Dynamic Buyback Achievers Portfolio (PKW) tracks U.S.-listed companies that repurchased at least 5% of outstanding shares over the past year, and Guggenheim Investments Insider Sentiment ETF (NFO) includes stocks with favorable corporate insider buying trends and earnings estimates. PKW has gained 30.8% over the past year while NFO rose 21.8%.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

For full disclosure, Tom Lydon’s clients own shares of TTFS.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.