Thought Starters #30. Start your week thinking with Equity Mates.
Equity Mates Thought Starters
Welcome to the weekly Equity Mates Thought Starters
We're trialling a new format for Thought Starters this week. We're cutting back on the long form 'thought starter' articles and adding a section for news that caught our eye. Let us know what you think by replying to this email.
Buybacks are a hot topic at the moment. Apple has recently announced another $100 billion in share buybacks (on top of over $200 billion already announced). Meanwhile, Democrats in America are looking at laws to limit or outright ban them.
For those unfamilair with buybacks - they occur when a company buys their own shares back on the open market. This is intended to benefit all remaining shareholders (as each remaining share owns a larger portion of the company). For that reason, investors generally think of buybacks as good news.
This piece from 13D Research questions whether buybacks are always good news for investors.
We like to think of ETFs are these passive investment vehicles that perfectly follow indexes. The truth is that these ETFs are rebalanced at regular intervals to mirror the rebalancing of the index, meaning these are not truly passive.
This article illustrates how the growth of ETFs can affect the underlying companies using the example of Gold Miners ETFs. For example, when an index rebalances and includes a new company all the ETFs following that index then need to go out and buy shares in that company. With so much money pouring into ETFs these days, that can create some interesting dynamics.