Minyi Chen, Portfolio Strategist for AdvisorShares, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the value of investing in companies returning cash to shareholders through dividends and buybacks.
Chen is the portfolio strategist for the AdvisorShares Insiders Advantage ETF (SURE). The actively managed ETF holds stocks that are returning cash to shareholders in the form of dividends and stock buybacks. When companies are repurchasing stock and reducing the number of shares outstanding, the supply of stock is declining, while the demand for the stock is increasing. Companies that are reducing shares outstanding are also increasing earnings growth, as earnings per share can rise simply through a declining number of shares outstanding. Another signal used in SURE’s algorithm is corporate insider buying, where management expresses confidence in each company’s prospects through personal purchases of the stock.
In recent years, stock buybacks have been setting records, with approximately $1 trillion annually in announced stock buybacks each year since 2020. Over this time period, the dollar value of stock repurchases has been over four times the value of dividends returned to shareholders.
The SURE ETF holds an actively managed, diversified portfolio that is equally weighted in 100 stocks and rebalanced monthly. The Insiders Advantage portfolio can provide diversification relative to capitalization-weighted index funds that can hold almost 40% of their weight in the technology and communications sectors. The strategy holds large, mid, and small-cap stocks, and recently held less than 20% of its assets in the technology and communications sectors.
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