ETFWorld.co.uk : One of the most widely used practices (particularly in the US stock market) to support the price of securities is the buyback, i.e. the operation whereby a company decides to buy back a certain amount of its own shares.
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There are basically three reasons for this operation: 1) to support the share price. The company, with this operation, wants to send a signal of confidence to the market, signalling that the stock is probably undervalued; 2) to provide itself with a reserve of securities to be used for eventual acquisitions and/or share exchanges; 3) to remunerate employees and managers through the allocation of shares.
With the buyback, therefore, the company reduces the number of shares on the market and thereby tends to increase the value/price of the remaining shares, with the shareholders receiving a larger dividend in this way (since the company’s profit is shared with a smaller number of shareholders).
The Nasdaq BuyBack Index, after breaking through the solid graphic barrier in the 23,850-24,000 point area, made a quick bullish move and rose to a peak of 27,656 points.
The primary trend is positive even if the strong overbought recorded by the most reactive oscillators may prevent a further extension and trigger a physiological pause for consolidation.
Only a descent below 25,850 points is dangerous, even if a possible correction will find a first support at 25,250 and a second support in the 24,700-24,500 point area.
The following ETFs can be used to invest in the stocks of the companies making this move:
Amundi S&P500 Buyback, ISIN LU1681048127. It is an ETF with assets under management of €86m, which provides for the synthetic replication (via a swap) of the underlying (represented by the S&P 500 Buyback index) and which adopts an accumulation policy (with dividends being reinvested within the fund). The total expense ratio (TER) is 0.15% per annum.
Invesco Global Buyback, ISIN IE00BLSNMW37. This ETF has €48m in assets under management and provides for full physical replication of the underlying (represented by the Nasdaq Global Buyback Achievers index). The ETF adopts a distribution policy (with dividends being distributed quarterly to shareholders). The total expense ratio (TER) is 0.39% per annum.
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Reproduction prohibited in any form, even partial
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