The Ultimate Leading Indicator?


If a company is confident to buy its own stock, shouldn't we? After all, a company knows more about itself than any Wall Street analyst.


Corporations sizes and sectors participate in share repurchase, or stock buyback, programs. Generally, companies that participate in share repurchase programs are carrying cash on the

balance sheet in excess of what is needed to fund daily operations and growth opportunities.


AmericaFirst has observed (both real-time and hypothetically) the consistent excess returns of a universe of companies that had purchased their own shares of stock over the last 12 months. Our research has focused on 12-month change in actual shares outstanding as it avoids possible false signals generated by mere buyback announcements.

Performance tests reveal that 12 month share change has produced superior returns. In addition, shares outstanding reductions of as little as 1% has generated excess returns across all cap sizes. Share reductions of greater than 5% produced even higher excess returns.

The following charts display the historical alpha generated by companies that participate in share repurchase programs.


Large Cap Stocks (Jan, 1976 – Dec, 2017)

Assumptions:

Largest 500 domestically-traded stocks as defined by market capitalization.

Returns assume equal-weighting and quarterly rebalancing.

Each quintile consists of 100 stocks

Share buyback represents 12-month change in shares outstanding



Mid Cap Stocks (Jan, 1976 – Dec, 2017)


Assumptions:

Next largest 500 domestically-traded stocks as defined by market capitalization.

Returns assume equal-weighting and quarterly rebalancing.

Each quintile consists of 100 stocks

Share buyback represents 12-month change in shares outstanding



Small Cap Stocks (Jan, 1976 – Dec, 2017)

Assumptions:

Next largest 500 domestically-traded stocks as defined by market capitalization.

Returns assume equal-weighting and quarterly rebalancing.

Each quintile consists of 100 stocks

Share buyback represents 12-month change in shares outstanding



As you can see, companies that purchased the greatest percentage of outstanding shares over a 12-month period outperformed companies in the lower quintile of share buyback – regardless of market capitalization.


How to Invest

The AmericaFirst Large Cap Share Buyback Fund (SBQIX, SBQAX, SBQUX) invests in large and blue-chip companies that have purchased their own stock within the last twelve months. In addition, the Fund screens for Fundamental strength and Price Momentum.

Call us to learn more at 916-787-9940.


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Mutual Funds involve risk including risk including the possible loss of principal. Of course, there is no guarantee that any investment strategy will achieve its objectives.

Diversification does not ensure profit or prevent losses and there is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. The success of the Fund’s hedging strategy will also be subject to the Adviser’s ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner.  An imperfect correlation between such hedging instruments may prevent the Fund form achieving the intended hedge or expose the Fund to risk of loss.

The AmericaFirst Quantitative Funds are distributed by Arbor Court Capital.