Buybacks: AdvisorShares TrimTabs Float Shrink ETF (TTFS)
Next up is the AdvisorShares TrimTabs Float Shrink ETF (TTFS), a relatively new entrant that began trading in late 2011.
The TrimTabs ETF is based on the same principle as the PKW — that reducing share count is ultimately good for shareholders — but the ETFs’ methodologies are very different.
TrimTabs uses the Russell 3000 index as its starting point, and equally weights a portfolio of 100 stocks that meet its criteria:
- Outstanding shares must have decreased over the past 120 days.
- Buybacks should be financed via strong free cash flows, not debt issuance.
The second point is a key differentiator for quality and prevents the index from being bogged down with companies that are simply swapping equity for debt.
Also, unlike the PKW, which is rebalanced and reconstituted mechanically, the TrimTabs ETF is actively managed, rebalancing as new information becomes available rather than by a set calendar schedule. Whether this is good or bad depends on your faith in active managers.
One aspect in which TTFS and PKW are similar is that they place, in my view, undue significance on buybacks in the immediate past rather than considering a long track record of shareholder friendliness. Expenses for TTFS run 0.99%, making it more expensive than other ETFs focused on buybacks.