|Written by Steve Hercenberg|
|Tuesday, 01 July 2014 10:09|
A Core/Satellite Portfolio (see previous article, “The Best of Both Worlds”) is an alternative investment strategy for investors in today’s volatile market. To build an effective core/satellite portfolio, start with biggest part of the portfolio, the Core. Then, add Satellites to enhance performance and fill gaps left by the Core holding. This blog will focus on selecting a Core investment using this strategy.
PowerShares Buyback Achievers Portfolio (NYSE – PKW - $44.85) offers the best of both worlds—a proven track record of higher rewards than the S&P 500 during bull markets and lower drawdowns during market corrections. PKW invests at least 90% of its total assets in common stocks that comprise the NASDAQ US Buyback Achievers Index. This index has only those U.S. corporations that repurchased at least 5% of their outstanding shares (buyback less issuance) over the previous twelve months and meet a minimum liquidity requirement of trading at least $500,000 per day on average. The Fund and the Index are reconstituted annually in January and rebalanced quarterly in January, April, July and October. PKW offers the following benefits to the Core-equity portion of a Core-Satellite portfolio:
In addition, if some of the companies were to buy back their shares when management deems them a bargain, it could provide a floor when share prices have been falling. As a result, volatility could be condensed further. So, the future long-term benefit of buybacks implies that fewer shares outstanding will translate into less downside risk since both earnings per share and book value per share increase compared with previous years.
PowerShares Buyback Achievers Portfolio (PKW) offers the best of both worlds—a proven track record of higher rewards than the S&P 500 during bull markets and lower drawdowns during market corrections. Because PKW is passively managed, investors can enjoy lower turnover, lower costs, and lower taxes. Because of the buyback program, PKW’s portfolio comprises extremely profitable, highly cash-generative companies, with managements focused on shareholder value. In addition, 80% of the fund's assets are in firms that Morningstar considers to have competitive advantages. Although it has lagged the S&P 500 so far this year, we project that PKW will outperform the index reaching $50 to $52 by the end of the year.
Disclosure: The author and his clients are long shares of PowerShares Buyback Achievers Portfolio exchange traded fund.
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