Here's One Buyback Strategy That Outperforms
Blog of HORAN Capital Advisors | Nov 25, 2012 02:42AM ET
In this week's Barron's an article, Companies Buying Back Shares Are Outperforming , the buyback index was significantly outperforming the broader market. Year to date, the Buyback Index is only slightly trailng the S&P 500 Index, 11.46% versus 12.05%, respectively. A large part of this minor underperformance is the absence of Apple (AAPL) in the buyback index.
On a 2-year basis though, the buyback index is up 26.80% versus the S&P 500 Index return of 19.35%.
In addition to the buyback index outperforming over longer periods than a year, the buyback index is less volatile. The 3-year standard deviation of PKW is 14.37% versus the S&P 500 Index standard deviation of 15.54%. Additionally, the buyback index experienced a smaller maximum drawdown in all time periods for 1, 3 and 5 years as of 10/31/2012.
For investors then, if you are allocating dollars based on a long term strategy, focusing on companies that buy back their stock might be a rewarding one.
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