VTV - Invesco BuyBack Achievers ETF: A Solid Value Play

2023-11-16 00:55:06 ET

Summary

• The Invesco BuyBack Achievers ETF tracks the NASDAQ U.S. BuyBack Achievers Index.
• PKW has performed nearly in line with the S&P 500 since its launch in 2006, delivering strong risk-adjusted returns.
• The Fund has significantly outperformed value-based products.
• Based on style and sector analysis, PKW is a value product and should be treated by investors as such.
• I believe PKW represents an attractive way for investors to get exposure to value stocks.

ETF Overview

The Invesco BuyBack Achievers ETF ( PKW ) seeks to provide investment performance that tracks the NASDAQ U.S. BuyBack Achievers Index. The Index is comprised of U.S. securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months. The fund and index are reconstituted annually in January and rebalanced quarterly.

PKW has ~$976 million in net assets and charges a total expense ratio of 0.62%. Fund characteristics include 313 holdings, a trailing P/E ratio of 11.7x, and a 12m trailing yield of 1.19%.

Management Fee

PKW has a relatively high total expense ratio of 0.62%. To put that into context the average equity ETF expense ratio is ~0.16%. Comparably, the Vanguard Value ETF ( VTV ) charges a total expense ratio of 0.04% while the iShares S&P 500 Value ETF ( IVE ) charges a total expense ratio of 0.18%. As an investor, I work diligently to avoid high management fees (active or passive) as I believe they are often an overlooked headwind when investing.

PKW's fee of 0.62% strikes me as particularly high given investors are not getting any active management but rather passive index replication.

Historical Performance

PKW launched in December 2006 and has performed nearly in line with the S&P 500. This is particularly impressive given that PKW is essentially a value-focused ETF since companies with large buybacks tend to be value-oriented companies as growth companies tend to reinvest in the business.

Since its inception, PKW has delivered a total return of 327% compared to a total return of 329% for the S&P 500. Value-oriented ETFs have posted much weaker performance with VTV and IVE delivering total returns of 216% and 206% respectively.

PKW has also delivered strong returns relative to the S&P 500, VTV, and IVE over more recent periods such as the trailing 3-year period.

In addition to delivering attractive returns on an absolute basis, PKW has also delivered attractive returns on a risk-adjusted basis. As shown by the chart below, PKW has realized an average 3-year trailing sharpe ratio of 0.88 since inception. Comparably, during the same period, the S&P 500 realized an average 3-year trailing sharpe ratio of 0.80. Value funds VTV and IVE realized sharpe ratios of 0.73 and 0.66 respectively.

Holdings Analysis

PKW is reasonably well diversified with the top holding being Comcast ( CMCSA ) which accounts for 4.79% of the fund. PKW's top 5 holdings account for 21.7% of the fund. Comparably, the top 5 holdings in the S&P 500 account for 23% of the index.

In terms of style breakdown, PKW clearly has a value tilt. When combining large cap, mid cap, and small cap holdings PKW holds ~49.6% stocks categorized as value, ~37.3% stocks categorized as blend, and ~13.1% stocks categorized as growth.

Comparably, ~44.1% of S&P 500 holdings are classified as growth, ~34.3% of holdings are classified as blend, and just ~21.6% of holdings are classified as value.

Additionally, VTV (which is a value only product) has ~44.4% exposure to value stocks, ~52.5% exposure to stocks classified as blend, and ~3.1% exposure to stocks categorized as growth.

The preference for value stocks can also be seen by the fact that PKW has just 8.05% exposure to the tech sector compared to 28.5% for the S&P 500.

While PKW holdings will shift to some extent the bias towards value is likely to consist as value companies tend to focus on buybacks while growth companies reinvest in the business.

Conclusion

In a world where many new ETFs have come to market offering very high fees for products that fail to deliver, PKW stands out as a solid ETF which has delivered for investors.

PKW has a long-history of producing strong results and has kept pace with the S&P 500. PKW's performance is much more impressive when considering the fact that the product is primarily a value product as value companies tend to be much more active buyers of their own stock compared to growth companies.

In addition to providing much higher returns than value products such as VTV or IVE, PKW has provided superior risk adjusted performance.

In my view, PKW represents a very attractive way for investors to get exposure to value stocks and has the potential to play an effective role in the portfolio construction process for investors looking for exposure to value equities.

Past performance is not a guarantee of future performance so investors should continue to monitor PKW going forward to ensure it is delivering strong risk-adjusted returns that are inline or better than other value products. Moreover, investors should also actively monitor PKW's holdings breakdown to confirm that the fund has retained its value bias.

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