Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to invest in companies executing significant stock buybacks because you take that as a sign of bullishness from their managements, the PowerShares Buyback Achievers ETF (NYSE: PKW) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously. (Just keep in mind that not all buybacks are smart ones.) The ETF is focused on companies that have bought back 5% or more of their shares over the past year.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Buyback ETF's expense ratio -- its annual fee -- is 0.60%. The ETF is relatively small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, but it's also relatively young, with just a few years on the books. It outperformed the S&P 500, on average, over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 26%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several Buyback Achiever companies had strong performances over the past year. Amgen (Nasdaq: AMGN), for example, advanced 26%, and bulls are optimistic about its acquisition of Micromet (Nasdaq: MITI), which will help it expand its cancer-fighting treatments, in blood cancers, specifically. Micromet also brings its BiTE antibody technology, which generates royalty revenues from other companies.
Lowe's (NYSE: LOW), up 11%, is poised to benefit from the eventual recovery of the housing market. Until then, though, it's not standing still. It's generating plenty of free cash flow, and recently acquired the online retailer ATG.
Other companies didn't do as well last year, but could recover and perform better in the years to come. Walgreen (NYSE: WAG), for instance, shed 20%, with investors worried about its breakup with Express Scripts, which delivered 12.5% of Walgreen's prescriptions last year. This is likely to have many customers departing, so the company is aggressively pushing its Prescription Savings Club.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 Dividend Stocks for 2012.
