Despite a category high 0.90 percent expense ratio, the AdvisorShares Wilshire Buyback ETF (TTFS) merits a close look, as it addresses a key drawback of share buyback plans: debt leverage. Many firms borrow money to buy back shares, which can prove to be quite risky during economic downturns.
The AdvisorShares fund, which has $131 million in assets, will only buy shares of firms that aren’t raising debt levels in order to buy back shares. That may explain this fund’s relatively strong performance, outgunning the S&P 500 in 2013, 2014 and 2016, leading to a five-star rating from Morningstar.
More important, the PowerShares and SPDR funds don’t look at a firm’s ability to produce future buyback programs. In contrast, the AdvisorShares fund requires candidates to have robust current positive cash flow, which is a key predictor of future buyback capacity.
The importance of focusing on cash flow comes into focus if you are dubious that Washington will enact tax reform legislation. But if we do indeed see moves to lower tax rates on foreign-sourced income, then all of these ETFs would likely greatly benefit.