S&P 500 Buyback Index

What Is the S&P 500 Buyback Index?

The S&P 500 Buyback Index is an index intended to follow the performance of the 100 S&P 500 stocks with the highest buyback ratios throughout the course of recent months. The S&P 500 Buyback Index is equivalent weighted and rebalanced quarterly, with the rebalancing reference dates happening on the last trading day of each calendar quarter. Index changes are effective post-retail close on the third Friday of the month after the reference date.

Understanding the S&P 500 Buyback Index

The S&P 500 Buyback Index positions the S&P 500 individuals in descending order of their buyback ratios each quarter and remembers the main 100 for the Buyback Index. The index gives investors a road to invest in companies that are forcefully buying back their own shares.

The buyback ratio is calculated as the amount paid for common share buybacks separated by the total market capitalization of common shares toward the beginning of the perception period.

A share buyback is a convincing route for a company to produce value for its shareholders, since a buyback contracts the number of outstanding shares, improving per-share measures of profitability and cash flow like earnings per share (EPS) and cash flow per share (CFPS).

Index Construction Methodology

As per S&P, the index is developed as follows: "To account for the release of company reports, there is a three-month lag from the reference date for the perception period for the calculation of the buyback ratio. This perception period for the calculation of the buyback ratio is defined as the year (or four-quarter) period ending one quarter before the reference date.

In that capacity, the perception period lasts 12 months (or four quarters) and starts 15 months prior to the reference date. The buyback ratios of the S&P 500 constituents are calculated as the monetary amount of cash paid for a common shares buyback during the perception period partitioned by the total market capitalization of common shares toward the beginning of the perception period. In the event that the stock isn't listed toward the beginning of the perception period, the total market capitalization from the main listing day will be utilized for this calculation. Constituents then, at that point, are positioned in descending order in light of the buyback ratio. The main 100 securities form the index."

Share Buyback Trends

Buybacks in the financial markets have consistently been expanding. The second from last quarter of 2021 set a record, with $234.6 billion in buybacks — besting the previous record of $223 billion in the fourth quarter of 2018. This comes after a setback in buybacks during 2020, in the midst of the Coronavirus pandemic.

As of Mar. 31, 2022, the main five sector supporters of the S&P 500 Buyback Index were financials (32.6%), consumer discretionary (17.3%), information technology (13.5%), industrials (11.3%), and healthcare (10.6%).

The positive gathering by investors to share buybacks can be measured by the outperformance of the S&P 500 Buyback Index comparative with the S&P 500. The index has produced an annualized total return of 15.07% throughout the past decade, while the benchmark has returned 14.64% over a similar period.

As is commonly said, past performance is no guarantee of future performance, so with this index — and for whatever other index that has outperformed a picked benchmark — an investor ought to be aware of what drives performance and rethink the index before settling on investment choices in view of it.

Features

• In spite of the fact that reprimanded by some as falsely expanding stock prices and apportioning cash wastefully by firms, share buybacks have increased decisively throughout the last decade.
• The S&P 500 Buyback Index is intended to measure the performance of the main 100 stocks with the highest buyback ratios in the S&P 500.
• Companies buy back shares with retained earnings, bidding up the share price and diminishing the stock of shares outstanding.