Contrarian Investor: Beware the negative buyback loop

Buyback ETFs undershooting benchmark indices

In recent years, US equities have pretty much consistently outperformed their British peers. There are any number of explanations for this performance gap, not least the sectoral mix of the respective markets.

However, one of the biggest factors must be share buybacks. According to analysts at HSBC, traditional institutional equity demand in the US has exceeded net share buybacks only three times since 1982 - in the early 1990s, after the dotcom collapse, and in 2009. Apple in $12bn bond issue to finance share buybacks Over the rest of the period, buybacks have been the main driver of demand for US stocks. In recent years, the buyback machine has gone into overdrive. According to Factset, in the fourth quarter of 2015, total US buybacks increased 5.2% year-on-year to $136bn. Their num...