Author Topic: New Index Fund ETF -- iShares Dividend and Buyback ETF  (Read 2078 times)

zombiehunter

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New Index Fund ETF -- iShares Dividend and Buyback ETF
« on: August 03, 2017, 11:47:32 AM »
Saw this and thought it was an interesting new Index Fund:

http://www.businessinsider.com/stock-market-today-buyback-etf-bull-market-backbone-2017-8

Quote
The iShares US Dividend and Buyback ETF (ticker to be determined) is designed to track the Morningstar US Dividend and Buyback Index, which provides exposure to the companies with the largest dollar value spent on the two activities.

While a healthy handful of dividend-focused ETFs are already available for trading in the US, it's the buyback component of the new iShares fund that's intriguing. For the entire eight-year bull market, repurchases have served as a handy backstop for companies, serving as a reliable driver of stock returns.

Ultimately, they're a win-win for corporations that want to push their stock higher by reducing shares outstanding while also signaling to the market that they see shares as undervalued. And, perhaps most important, it's a tactic that can generate returns during lean times, as it did during the S&P 500's five-quarter earnings slump, a period that saw the index still grind out a 1.5% gain.

It's easy to see why investors would want exposure to companies that are repurchasing shares. During the bull market, the S&P 500 Buyback Index which consists of the 100 companies with the highest ratio of cash spent on buybacks versus total market cap has surged 417%, far outpacing the benchmark S&P's 266% gain.

There's no info in the article about the expected expense ratio, but since it's an index and iShares, I would guess/randomly speculate/hope for 0.25% or lower. 

Question for the thread -- what are the pros and cons to a fund such as this?  For example, during the 09-current bull market, the Index shows greater returns than the S&P as a whole -- 416% to 266%.  Would this suggest that during a market downturn one should expect greater losses as well?  (The third quoted paragraph suggests that even while the S&P was flat, the Index was up 1.5%.)

runewell

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #1 on: August 03, 2017, 12:09:51 PM »
At some point the market is going to get expensive and the companies might decide that their shares might not look like bargains. 
At any moment companies might decide that buybacks are no longer an optimal strategy.  If a recession or crash occurred, they might prefer to have more capital. 

Hard to say.

kenaces

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #2 on: August 03, 2017, 12:17:46 PM »
https://www.amazon.com/Shareholder-Yield-Approach-Dividend-Investing-ebook/dp/B00CRLSL4W/ref=sr_1_4?ie=UTF8&qid=1501784101&sr=8-4&keywords=meb+faber

This is just another way to add some value tilt to a portfolio that I like.  If the ER on new fund is low enough I would consider using it.

doggyfizzle

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #3 on: August 03, 2017, 04:00:29 PM »
The performance plot for the Index conveniently begins at the market nadir in March 2009; I'd be interested to see index performance from 2006-2010 as many of the companies that devote the majority of cash flows to buybacks/dividends have been financials (which fared worse than the S&P during the global recession of 2007-2009).

kenaces

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #4 on: August 03, 2017, 04:17:22 PM »
The performance plot for the Index conveniently begins at the market nadir in March 2009; I'd be interested to see index performance from 2006-2010 as many of the companies that devote the majority of cash flows to buybacks/dividends have been financials (which fared worse than the S&P during the global recession of 2007-2009).

PKW seemed to track SP500 very closely in 08.  Currently it has 25% in financial sector.

SYLD (based on book above) wasn't around in 08.  Currently it has 34% in financial sector.

So both are overweight financials compared to SPY(~15% financials) I would not but worried about some kind of financial sector 08 risk at the banks are way better capitalized now.  My concern is more about the 50-60bps ER these funds have.

Lucky Penny Acres

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #5 on: August 03, 2017, 09:08:21 PM »
There is no information on the expense ratio because the fund hasn't launched yet.

The fund just filed its initial registration with the SEC a couple days ago so the fund won't actually launch and be available for investing for at least a couple of more months. Funds are not required to insert the actual fees and expense ratios until closer to launch after the initial round of SEC review.

Here is a copy of the fund's prospectus if anyone is interested (all the important fee numbers are blank):
https://www.sec.gov/Archives/edgar/data/1100663/000119312517244383/d431479d485apos.htm




chasesfish

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #6 on: August 04, 2017, 05:54:49 AM »
I've owned a chunk of VIG for a while from Vanguard, same theory.  Its a nice ETF for people who want a little lower volatility and can accept a slightly lower return than a straight index fund.  Expense ratio runs around 0.10% if I remember.

Not sure if I should still own it or just go VTI, I guess I'm a little more in the "wealth preservation mode" since I hit a few of my FI numbers.


marty998

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #7 on: August 04, 2017, 07:42:14 AM »
Hard to see how all of these next generation ETFs can truly be called "index" funds.

Sure they might track a particular market data providers' special index... but essentially it's just stock picking towards a particular bias (in this case high yield?).


zombiehunter

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #8 on: August 04, 2017, 12:49:07 PM »
My interest in this Index ETF relates to the "buyback" portion, rather than the Dividend portion -- as there are several well-known Dividend ETFs already (for example, VYM and VIG).  There's also been endless discussion on whether Dividend Investing is good strategy.  That was not my purpose in starting this discussion.

Instead, the 'buyback' tracking Index seems like a really novel way to target companies that, in theory, are solid bets because they are betting on themselves so to speak.  I would be interested to compare the returns of such a fund against (1) the S&P 500 as a whole -- presented in the article as though the Index has substantially outperformed it since 2009, and (2) against a Dividend ETF for example VYM. 

The strategy seems plausible -- by tracking companies that are paying high dividends and doing buybacks, it basically self selects for: large caps (?), those with decent Value rather than growth (because the dividend component is already tilted toward value, and the Buyback component self-selects companies who think they are themselves under-valued).

In any event, I guess it all comes down to what the ER turns out to be, and secondly, how many companies are in this ETF.  Hopefully its a substantially number rather than only a few holdings.

UPDATE - the SEC filing indicates something like 380 holdings, so that's great.  I was concerned if the number was going to be less than 100 or 50 holdings.   

tj

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Re: New Index Fund ETF -- iShares Dividend and Buyback ETF
« Reply #9 on: August 05, 2017, 07:15:59 PM »
I'd have to see what the expenses are. I'm surprised it's taken this long for a "Dividend +Buyback" ETF to show up.

I like the Vanguard Equity Income Fund for a dividend strategy fund. it's cheap enough at 17bps.