Solactive AG has launched the Solactive European Buyback Index (BUYEU Index), which will be used as underlying for index-linked products by Société Générale Corporate & Investment Banking (SG CIB), including swaps, options, warrants and certificates.
Buyback is defined as the purchase of its outstanding shares by a company. It is well-known as an alternative way for companies to ‘return’ cash to their shareholders by increasing earnings per share, used first in the US and more and more in Europe as well. By repurchasing some shares, companies officials, regarded as having superior information, state that they consider the current shares available in the open market as undervalued. Scientific research found outperformance patterns in a period of time from two months to two years after a buyback was announced.*
Steffen Scheuble, CEO, Solactive, said: “We are pleased to launch the Solactive European Buyback Index for SG CIB, which will fill a gap in the market, at a time when buyback is becoming an increasing popular concept in the US, as well as in Europe.
Stéphane Mattatia, Head of Global Equity Flow Engineering in Paris, SG CIB, said: “A number of academic studies show high return generated by the stocks of companies which buy back their own shares. This appears as a transparent and regular source of performance, exactly the kind of investment our clients are looking for.”
The Index universe is composed of all stocks which announced a stock buyback in the last two months, in 16 Western European countries. To be eligible in the universe, stocks must have a minimum market capitalization of 500m EUR and an average trading value of 2m EUR over the last three months.
The components are weighted according to their buyback ratio, defined as the sum of all shares bought back in the period divided by the number of shares outstanding at the beginning of the period.
The Index had an annual return of 23.17% and a volatility of 17.98% between 28th November 2008 and 17th March 2014.
*Information and Long-Term Stock Performance Following Open-Market Share Repurchases, 2013, By Fei Leng and Gregory Noronha
*Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures, 2012, By Azi Ben-Rephael1, Jacob Oded and Avi Wohl
*Earnings Management and Firm Performance Following Open-Market Repurchases, 2008, By Guojin Gong, Henock Louis and Amy X Sun