State Street Launches Buyback ETF

State Street Global Advisors has launched the SPDR S&P 500 Buyback ETF (SPYB), providing access to a portfolio of S&P 500 stocks with the highest buyback ratio, SPYB offers investors an opportunity to complement their dividend strategies and potentially improve the risk-return profile of their portfolio.

“Companies that buy back their own shares have established a long-term track record of outperforming their peers in both up and down markets,” said James Ross, executive vice president and global head of SPDR Exchange Traded Funds at State Street Global Advisors, in a release. “SPYB helps investors access a diversified buyback portfolio to capture this return stream and complement any existing dividend strategies.”

The SPDR S&P 500 Buyback ETF seeks to track the performance of the S&P 500 Buyback Index. The index provides exposure to the 100 constituent companies in the S&P 500 with the highest buyback ratio in the last 12 months.

The buyback ratio is defined as the ratio of the total cash put towards buybacks in the trailing year and the market capitalization of the company as of a reference date. A “buyback” occurs when a company buys back its own shares from the marketplace, reducing the number of shares outstanding. Index constituents are equally weighted and the index is rebalanced quarterly. The SPDR S&P 500 Buyback ETF’s expense ratio is 0.35 percent.

Over the past three decades, share repurchases have surpassed cash dividends to become the dominant form of corporate payout in the United States. From 1980 to 2013, the proportion of dividend-paying companies has decreased from 78 percent to 40 percent. During this same period of time, the proportion of companies with share buybacks increased from 28 percent to 43 percent. This increased use of share buybacks is driven by legal, tax, and structural changes in the US markets, according to SSGA.