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Smart Beta ETFs to Watch as Companies Ramp Up Buybacks

This article was originally published on ETFTrends.com.

Despite the increased Congressional scrutiny, companies still increased share repurchases over the first quarter, potentially bolstering a smart beta ETF strategy that specifically targets companies with a history of stock buybacks.

Some project that buybacks are on their way to another record this year, potentially outdoing the over $1 trillion seen in 2018, CNBC reports.

Company buybacks are under the microscope on Capitol Hill as both Republicans and Democrats censured buyback practices, arguing that corporate America is receiving an unfair advantage in the tax code that rewards the behavior instead of reinvesting back into workers and equipment.

“To me, this poor income distribution and the ensuing and uncharacteristic lack of hope it creates in the American working class is — along with climate change — the greatest problem America faces,” New York Democratic Sen. Charles Schumer said. “We need solutions, not glib answers.”

Nevertheless, corporate American continued on their share repurchases plans. According to Bank of America Merrill Lynch, repurchases are up 91% year-over-year, with staples and materials leading the charge followed by tech and financials. Over the past week, there was nearly $2.8 billion in deals, the fourth-highest level since BofAML began tracking the data point in 2009.

“The current pace of buybacks would suggest a record year in [staples and materials] plus Financials and Utilities; Industrials and Discretionary buybacks, while below post -2009 records, are also set to eclipse last year’s levels,” Jill Carey Hall, U.S. equity strategist at BofAML, said in a note.

Howard Silverblatt, senior industry analyst at S&P Dow Jones Indices, pointed out that S&P 500 companies that have reported Q4 results are showing just a 1% dip in share repurchases from the record third-quarter buyback levels, with the amount 64.8% ahead of the fourth quarter in the year prior.

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) and iShares U.S. Dividend and Buyback ETF (Cboe:DIVB) .

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.

For more information on the buybacks strategy, visit our buybacks category.