How have those distinct approaches impacted performance? Well, the SPDR fund only has a three-year track record at this point. But in that time, it has delivered a 9.55 percent return, more than three percentage points better than the PowerShares fund. And the SPDR fund’s 0.35 percent expense ratio is lower as well. Despite the marketing muscle of the SPDR platform, the fund has a surprisingly low $16 million in assets (compared to $1.3 billion for the PowerShares fund).
It’s worth noting that both funds have lagged the S&P 500 over the past three years. But as mentioned, the PowerShares fund beats the benchmark over the past decade.
The AdvisorShares Wilshire Buyback ETF (TTFS), a third entrant in the category, has two clear drawbacks: a stiff 0.90 percent expense ratio and very low trading volumes which can lead to bid/ask spreads in excess of 40 cents.
And that’s a shame, because the fund has a slightly better five-year track record than the PowerShares fund. This is a fund to keep on your watch list to see if its sponsor drops that high expense ratio. If it does, then perhaps trading volumes would rise and trading spreads would narrow.
TTFS excludes any firms that lard up their balance sheets with debt to fund buybacks, so in theory this fund should perform better in a market downturn or economic slowdown. In 2008, when firms were hunkering down and hoarding cash in the face of a possibly protracted recession, debt-heavy firms saw their stocks pummeled.
Make no mistake, buybacks can have a powerful impact on share prices. Just ask the investors of Home Depot. That firm’s share count has been reduced by more than 500 million since 2010, which has led to per share profits being 30 percent higher than they would otherwise have been. Still, for every Home Depot there is a Nokia or a GE. Using the ETF approach ensures that investors don’t end up betting on the wrong buyback horse.