Bank on the Buyback Binge With This ETF

The primary avenues through which companies deliver shareholder rewards are dividends and buybacks. Investors looking to tap into themes with exchange-traded funds (ETFs) have an extensive list of dividend-focused funds to consider.

For some reason, that's not the case with buybacks, as that corner of the ETF world is sparsely populated. Arguably, it's an interesting phenomenon when considering that by some estimates, 2025 marked the fifth straight year in which S&P 500 companies spent more on share repurchases than they did on cash payouts. One estimate indicates the 2025 tally was $1 trillion in buybacks, compared to $750 billion in dividends.

This ETF is home to companies that are really reducing share counts via buybacks. Image source: Getty Images.

Thanks to the Invesco BuyBack Achievers™ ETF (NASDAQ: PKW), investors can hop on the buyback bandwagon broadly, eliminating the need to identify the most devoted share repurchasers individually.

PKW has perks

How the buyback ETF functions is critical in understanding its potential. It tracks the Nasdaq US BuyBack Achievers™ index, which requires that member firms reduce their shares outstanding counts by at least 5% over the trailing 12 months.

That level of gatekeeping can work in investors' favor because any company can announce a share repurchase program, but not all actually reduce the share count. For example, a corporation can tell investors it's going to buy back $10 million of its shares. Still, if its stock-based compensation is also $10 million (or more), the firm's shares outstanding tally won't be affected much.

As it relates to buybacks, the issue of equity-based compensation is relevant because some (not all) companies use repurchase programs to cover up profligate share issuance to high-ranking executives. That is to say, they're talking the talk but not walking the walk when it comes to reducing shares outstanding. This Invesco ETF helps investors avoid those situations.

The stringency applied by this ETF's index is essential for another reason. As companies reduce the number of shares freely floating on the market, they juice their earnings per share (EPS). It's just how the math works when net income is divided by shares outstanding, which is the formula for calculating EPS. The lower the number of shares divided by net income, the higher the EPS is likely to be.

Sector configuration matters

Another reason why investors considering the buyback ETF need to be mindful of the 5% requirement is that it helps avoid sector surprises on the investor's end. Yes, in the third quarter of 2025, technology was the leading sector for buybacks in dollar and percentage terms. Still, it accounts for just 4.94% of the Invesco fund's weight because not enough companies in the industry meet the ETF's 5% reduction in shares outstanding requirement.

A further example is healthcare. Investors might assume that due to tariff headwinds, the sector has taken its foot off the buyback gas. It hasn't. Healthcare had the most significant percentage increase in spending on share repurchases in the third quarter, and the sector accounts for nearly 12% of this ETF's lineup.

Financial services is an epicenter of actual share count reduction as that sector accounts for almost 31% of the fund's portfolio. The price of joining this vaunted buyback club is 0.62% per year, or $62 on a $10,000 investment.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.