The last couple of years have not been very smooth for the
global markets. Besides economic troubles in Italy, Spain, Greece
and Ireland, sequestration and the fiscal cliff in the U.S. had
caused disruptions to the Wall Street rally.
Still, even with these issues, markets have surged higher so far
in 2013. Investors have looked past global problems and focused on
strong domestic data and a rebounding housing market for reasons to
be optimistic over the future of the U.S. market ( Top Performing ETFs of the First Quarter ).
It appears that as long as the Fed continues with its massive
asset purchases, none of the global upheavals can stop the Wall
Street advance. In fact, stocks are within striking distance of
all-time highs, though volatility has increased as of late.
Still, even with higher volatility levels, bonds remain somewhat
unattractive due to their poor yields. This has pushed many into
stocks, allowing investors to ride the wave higher this year.
Yet even with the exceptional performance showcased by the
S&P 500 Index, there are some market segments that have
actually beaten out SPY in terms of returns. These corners may be
overlooked, but they are clearly capable of big gains as well ( 3 ETFs Beating the S&P 500 ).
So for investors seeking other market segment plays that are
doing well in this market environment, a closer look at any of the
could be a good idea. These funds target many of the same stocks
that are in SPY, but have managed to outperform thanks to a
potentially superior-albeit more expensive-strategy that could
continue to see outperformance in the months ahead:
PowerShares Buyback Achiever Portfolio (PKW)
Apart from returning cash in the form of dividends to
shareholders, share buybacks have also become a very popular
strategy in the U.S. With the U.S. finally on the growth track,
corporate companies are seeing their profits rising and are
therefore returning more cash to shareholders in the form of share
Moreover, considering the current low rate environment,
companies are finding borrowing debt at low rates and using this
cash to buy back shares as a more attractive option than
paying dividends. This is also assisting them to reduce their
shares outstanding and increase earnings per share ( 4 Excellent Dividend ETFs for Income and
2013 is turning out to be a record year for share buybacks by
U.S. companies. In February, U.S. recorded share buyback authorizations of $117.8 billion,
which is much higher than $68 billion recorded a year ago. The
nation had last recorded its highest authorization for share
buybacks in 1985.
This gives enough reason why an investor should look for
companies engaged in share buybacks but instead of investing in
individual companies, the basket form makes an interesting strategy
to go for. PowerShares Buyback Achiever Portfolio (PKW) represents
an intriguing choice in the space.
Investors should note that this ETF that tracks companies that
have repurchased 5% or more of their common stock in the trailing
12 months has been a solid performer in 2013. The return provided
by the fund is not just impressive but has remarkably beaten
SPDR S&P 500 ETF (SPY).
In the year-to-date period when SPY has returned 11.42%, PKW has
garnered an impressive return of 15.91%. The outperformance of the
ETF is visible even in the performance of the last five years.
While PKW gained 60.26%, returns from the S&P 500 ETF stood at
26.54% ( How the Buyback ETF Continues to Beat SPY
The fund manages an asset base of $354.1 million, which it
invests in holdings of 209 companies. The fund charges an expense
ratio of 71 basis points.
Company-specific risk is quite negligible in the fund as the
concentration in the top ten holdings stands at 36.46%. Among
individual holdings, Amgen, News Corp and ConocoPhillips occupy the
top three holdings.
Among sector allocation, consumer discretionary companies are
given the maximum weighting (35.73%) while financials and
information technology companies round the total allocation to
69.35%. So it is quite obvious that the fund is biased towards
certain sectors, though the fund has clearly outperformed over the
Guggenheim Spin-Off ETF (CSD)
Another strategy that seems to have gained traction among the
U.S. companies is the spin-off. Large U.S. companies are
segregating certain assets into separate entities with an aim to
History shows that spin-off companies have most of the time
turned out to be profitable as revealed by their returns and
operating cash flow. To leverage the profits from spin-off
ventures, investors can use the basket form, or ETFs, instead of
investing in individual spun-off companies ( 3 ETF Strategies for the Second Quarter ).
CSD represents a compelling choice in the space to invest in a
group of spin-off companies. The most appealing thing about this
ETF has been its out performance over broad benchmarks in the long
term. In fact, CSD has returned 209.9% since the start of 2009
compared to a return of 85.2% of SPY.
In the year-to-date period, while SPY retuned 11.42%, CSD
delivered a return of 18.89%. The fund indeed has a remarkable
story of delivering strong returns and beating the broader market
ETF since its inception.
CSD is the lone ETF tracking spin-off companies. The fund
manages an asset base of $1.3 billion. Despite the only option
available to tap the spin-off companies, CSD seems to be less
popular among investors as indicated by its trading volume of
42,300 shares a day.
The ETF provides exposure to 27 securities which are mainly
small and mid-cap companies. This makes the fund even more
attractive as small and mid-cap companies have more potential to
grow than their large cap counterparts.
The fund appears to be moderately concentrated in the top ten
holdings as the percentage allocation stands at 48.49%. Among
individual holdings, Fiesta Restaurant Group, Marathon Petroleum
Corp and Huntington Ingalls Industries occupy the top three
positions in the fund. The fund has a net expense ratio of 0.60% (
ETF Strategies for Long Term Success ).
From a sector perspective, the ETF has made double-digit
allocations to energy, industrials, and consumer discretionary
sectors with a share of 23.86%, 22.33% and 18.77%,
Lately the spin-off strategy and stock buybacks seem to have
gained momentum in the market. Fortunately, investors have CSD and
PKW to play both of these trends in basket form.
While it should be noted that both are much pricier than their
pure market cap counterparts, they have seen tremendous
performances. This has been in both the short and long term,
suggesting that CSD and PKW could be great picks for investors
seeking a different way to target U.S. markets this year.
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