After being in the spotlight for reporting lackluster first
quarter fiscal 2014 results, technology bellwether
recently announced the repurchase of $14 billion of its shares in
the two weeks following its earnings release. This share buyback
was part of its previously announced $50 billion repurchase plan.
Apple's CEO Tim Cook admitted that the repurchase was an
"opportunistic" move, surprised as he was by the plunge in the
company's shares following the release. Apple shares slumped in the
wake of lower-than-expected holiday iPhone sales, which impacted
fiscal first quarter results (read:
3 ETFs in Focus on Apple Earnings Results
Though Tim Cook was being "aggressive" in buying the shares of its
own company, the move was not appreciated in certain quarters.
There were people who thought that the cash could have been better
utilized for driving growth at the company or for a new product
However, its seems that the majority of people, including
billionaire activist investor, Carl Icahn, appreciated Apple's
recent move - as reflected by a 1.4% rise in the company's share
price following the news. Carl has been goading the gadget-maker to
return more wealth to its shareholders by boosting share
repurchases, but he has seemingly given up on this plan for now.
Buybacks in Focus
The recent share repurchase by the company highlights the fact that
more and more U.S. companies are increasingly spending on share
repurchases to reward shareholders. In fact, the companies are
buying back shares at a record pace.
and Dow Jones indices, share repurchases increased to $128.2
billion during third quarter 2013, up 8.6% sequentially and 23.6%
from the year-ago quarter.
The third quarter figure represents the highest level since the
fourth quarter of 2007. Apple alone repurchased more than $40
billion of its shares in the last 12 months and was the biggest
buyer in the third quarter of 2013.
This trend is expected to continue as U.S. companies are sitting on
a pile of cash on their balance sheets. Also, buybacks have gained
precedence over dividends as some believe that they can return more
value to shareholders.
Moreover, buybacks are beneficial for the companies as well.
They reduce the outstanding number of shares, thereby
bolstering the earnings per share number (see
3 ETFs that Maximize Shareholder Value
This strategy is expected to bode well for
PowerShares Buyback ETF
), which includes companies that have repurchased 5% or more of
their common stock in the trailing 12 months. This fund might be an
interesting pick for those who like the buyback idea, and we have
highlighted the fund in greater detail below:
PKW in Focus
PKW tracks the NASDAQ U.S. Buyback Achievers Index, holding a
basket of 177 securities. The fund manages an asset base of $2.5
billion, charging 60 basis points as fees to investors.
Though Apple is currently not a part of PKW, its aggressive share
repurchase policy might make it a likely candidate for inclusion in
the fund, should the buyback ever reach the 5% threshold. The
fund is rebalanced quarterly, with the next rebalancing due in
The fund already has the second largest exposure to Tech stocks,
allocating 16.9% of the total fund assets. Consumer Discretionary
stocks dominate the fund, having around one-third of the total fund
Also, among the top ten holdings of the fund, the tech stocks
together have around 7.4% exposure in the fund (read:
Yahoo Share Buyback Plan Put These ETFs in
The fund's niche strategy has enabled it to outperform broader
market indices since its inception. The ETF has been outperforming
the broader markets over the last five years. In comparison to the
S&P 500's return of around 32% last year, PKW returned an
Apple's recent buybacks bring to focus the fact that this might be
the most preferred way of corporate firms for returning cash to
shareholders this year as well. If that be so, the above mentioned
fund might continue to outperform the market, and be an interesting
selection for investors seeking a broad market play with a
Best ETF Strategies for 2014
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