New ETFs On The Block: SPDR S&P 500 Buyback ETF (SPYB)

98153895The US economy is facing a strange situation; while corporate profits reached record highs, economic activity still remains subdued along with considerable slack in capacity utilization.

In the absence of capex opportunities, many companies are undertaking share buybacks to trim balance-sheets and boost EPS/returns. Also, buybacks are more tax efficient for investors than a special dividend.

Data by FactSet shows buybacks by S&P 500 companies rose to $143.4 billion in the third quarter of 2014, the fourth highest since 2005. Further, about 374 companies of the benchmark index repurchased some of their own shares between July and September last year, the report showed.

State Street Global Advisors, the third largest US issuer of exchange-traded funds, recently launched the SPDR S&P 500 Buyback ETF (SPYB) to take advantage of share-count reductions by American corporations. The passively-managed fund tracks the S&P 500 Buyback Index – a gauge that seeks exposure to the 100 companies with the highest buyback ratio in the trailing 12 months from the broader S&P 500 universe.

Buyback ratio is defined as the ratio of the total cash spent in buying back own shares from the marketplace in the last 12 months to the market capitalization of the company as of a reference date.

The fund’s underlying index follows an equal-weight strategy and is rebalanced every quarter. The equal weighting strategy ensures SPYB’s portfolio is well diversified with none of the individual holdings exceeding 1.25 percent of the total Assets under Management.

Tesoro Corporation (1.25 percent), Kohl’s Corporation (1.21 percent) and Urban Outfitters Inc (1.20 percent), Anthem Inc (1.18 percent) and Boeing Company (1.15 percent) are the top five holdings of the SPYB. Sector-wise, consumer discretionary (24.69 percent) takes the top-spot, while information technology (18.16 percent), industrials (16.40 percent) and financials (13.97 percent) all get double-digit allocation.

The fund has an annual expense ratio of 0.35 percent.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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