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By Ben Johnson, CFA | 02-19-2014 02:00 PM

Morningstar Minute: A High-Quality Core ETF Holding

PowerShares Buyback Achievers targets firms which have had the financial strength to keep buying shares, but beware of the high price tag.

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Ben Johnson: This week we'd like to spotlight the PowerShares Buyback Achievers fund, ticker PKW. This fund is an interesting option for a core U.S.-equity holding. The methodology underlying this fund is interesting in that it looks to build a portfolio of companies that are listed on either the Nasdaq or the New York Stock Exchange that have achieved a 5% reduction in their net shares outstanding over the course of the past 12 months.

What does it take to achieve such a reduction in shares outstanding? It takes firms that are extremely profitable, highly cash-generative, and looking to give a nod toward shareholders by reducing their share base and in earnest manner. This is a very high-quality portfolio. In fact, if you look at the underlying holdings, about 80% of this fund's assets are invested in firms which Morningstar deems to have an economic moat.

PKW has a really solid track record. Over the past five years, it's ranked in the top 5% of the U.S. large-cap blend category. That said, it's got a bit of a tarnish on its record in that it's a bit pricey.

Now that said there might be a bit of hope there for investors in that PowerShares has recently filed to launch an international version of the same fund. The price tag on that particular fund is proposed to be somewhat lower. I would expect that pressure will ultimately mount on PowerShares to reduce the fee for this particular fund, which may serve to diminish, if not erase, this one smudge on our overall take on this fund, PKW.

 

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