ETF Expert

The debate over stock buybacks — good for shareholders, bad for shareholders — is as old as the practice itself. A company may choose to repurchase shares of its own stock because they believe that the prices are depressed. Or, they may be doing it to make their “numbers” look better, since the E in P/E is based on the number of outstanding shares in existence.

Soooooo… stock buybacks may be great for stockholders if the company’s motivation is to make the best use of cash. Conversely, weaker companies may be looking for ways to cover up lousy fundamentals.

As a whole, however, the market does tend to see stock repurchasing/buyback as a positive. The fact that Standard & Poor’s recently reported that Q3 buybacks by S&P 500 companies were 44% greater than for Q2 seems to lend credence to the idea that CEOs believed their share prices were quite low.

Can an ETF investor get in on the buyback phenomenon? The PowerShares Buyback Achievers Portfolio (PKW) tracks a Buyback Achievers Index. For a company to become eligible for the index, the company must be a U.S. company trading on a U.S. exchange. Most importantly, the company must have repurchased at least 5% of its outstanding shares over the prior 12 months.

Performance-wise, the fund has shown an ability to out-muscle benchmarks like the S&P 500 and the Russell 3000 Value (IWW). There’s been slight out-performance over the last 3 years since PKW began trading, with more impressive year-over-year results.

The PowerShares Buyback Achievers Portfolio (PKW) demonstrates performance potential. It also boasts better “fundamentals” than many ETFs trading at the moment.

At the same time, I am concerned about ”trade-ability.” With only $35 million in assets and an average volume of just 6000 shares, PKW may be difficult to enter and exit at a price point that you would like.

If you’d like to learn more about ETF investing… then tune into “In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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