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Charted: The Rise of Stock Buybacks Over 20 Years

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This infographic is available as a poster.

Stock Buybacks infographic

Stock Buybacks

This infographic is available as a poster.

Chart: The Rise of Stock Buybacks Over 20 Years

Despite market turbulence, stock buybacks are on track to hit record levels by year-end.

Spurring this wave of buybacks are strong corporate cash flows⁠—sitting near $2 trillion—and a 1% excise tax on buybacks approaching in 2023. This signals a vote of confidence from corporations on their financial health even as a recession looms large.

In this Markets in a Minute from New York Life Investments, we chart the growth of buybacks over the last two decades and the implications for investors looking ahead.

How Stock Buybacks Work

In stock buybacks, corporations buy their own shares from existing shareholders. This reduces the number of shares in the market and boosts earnings per share. Often, this can increase share prices given the rise in earnings growth.

It was not until 1982 that share repurchases became legal, driving wider usage among corporations as a capital allocation tool.

By comparison, dividends are another common form of distributing capital back to shareholders.

Dividends are bound by strict policies and do not offer the same tax advantages and flexibility as buybacks. While dividends are taxed as income, buybacks are taxed as capital gains—making them a preferential choice for investors. Given these advantages, stock buybacks have outpaced dividends over the last two decades.

In fact, in the third quarter of 2022, an estimated one in five companies in the S&P 500 Index conducted buybacks that in turn increased their earnings per share by at least 4% year-over-year.

Stock Buyback Trends

As the below table shows, stock buybacks in the S&P 500 Index outnumber dividends by about double in 2022:

YearS&P 500 Stock BuybacksS&P 500 Dividends
2022*$1.00T$0.54T
2021$0.88T$0.51T
2020$0.52T$0.48T
2019$0.73T$0.49T
2018$0.81T$0.46T

Source: S&P Dow Jones Indices (Sep 2022). *For the 12-months ending June 2022.

However, stock buybacks fluctuate more often than dividends since corporations can turn them on or off. For example, in 2020, buybacks sharply declined given growing financial uncertainty. Meanwhile, companies issued dividends at a steady pace.

In this way, when share prices decline, buybacks typically decrease.

Yet unlike the last two recessions in 2008 and 2020, buybacks have shown notable strength in 2022 in spite of falling share prices.

What Are the Top Sectors for Stock Buybacks?

We can see in the table below that the biggest share repurchasers are in the tech sector, with $2.1 trillion in buybacks since 2009.

SectorCumulative Buybacks Since 2009Q2 Buybacks
Information Technology$2,060.4B$72.0B
Financials$1,265.0B$21.2B
Consumer Discretionary $941.7B$27.6B
Health Care$929.1B$17.2B
Industrials$717.6B$17.4B
Consumer Staples$548.1B$10.7B
Communication Services$369.6B$29.4B
Energy$337.9B$13.4B
Materials$187.0B$8.7B
Utilities $26.8B$0.5B
Real Estate$16.9B$1.1B
Total$7,382.6B$219.6B

Source: Yardeni Research (Nov 2022). Represents stock buybacks for S&P 500 Index sectors.

On the other hand, utilities and other capital-intensive sectors tend to spend less on buybacks in contrast to asset-light sectors such as tech and financials.

What is also characteristic to share buybacks is their concentration. As we have seen in the second quarter this year, the top 20% of buybacks make up 47% of all repurchases across the S&P 500 Index.

New Tax On Stock Buybacks

Stock buybacks have drawn criticism for using cash to benefit shareholders instead of boosting production or improving the quality of the business.

In response, beginning in 2023, the Inflation Reduction Act puts a 1% excise tax on buybacks.

What this means is that public companies based in the U.S. must now pay a 1% tax on share repurchases, which could result in millions of additional expenses. Given this new tax rule, corporations may be accelerating buybacks ahead of year-end.

Implications for Investors

As stock buybacks have grown in prominence, it’s worth noting that not all are equal.

When a buyback aligns with a company’s long-term plan, and the company can cover their operational expenses, it can support the stability and growth of the company. When stock prices are volatile, companies can repurchase shares when they are undervalued.

By contrast, if a company takes on excess leverage in order to buyback shares, it can contribute to lower financial resilience. When a company uses a buyback to opportunistically repurchase shares, the boost in share prices may be short-lived.

In addition, it could also prevent capital from being directed to growth initiatives. In this way, it’s important to consider stock buybacks on a case-by-case basis.

With this in mind, investors can look to companies with healthy balance sheets that can weather economic storms. Here, companies that illustrate price discipline and buy back shares at a discount may help build long-term value, providing benefits to investors who stay the course.

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Markets in a Minute

What is the Success Rate of Actively Managed Funds?

For actively managed funds, the odds of beating the market over the long run are like finding a needle in a haystack.

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Actively Managed Funds

What is the Success Rate of Actively Managed Funds?

Over a 20-year period, 95% of large-cap actively managed funds have underperformed their benchmark.

The above graphic shows the performance of actively managed funds across a range of fund types, using data from S&P Global via Charlie Bilello.

Missing the Mark: Actively Managed Funds

Several factors present headwinds to actively managed funds.

  • Trading costs: First, fund managers will trade more often than passive funds. These in turn incur costs, impacting returns.
  • Cash holdings: Additionally, many of these funds hold a cash allocation of about 5% or more to capture market opportunities. Unlike active funds, their passive counterparts are often fully invested. Cash holdings can have the opposite effect than intended—dragging on overall returns.
  • Fees: Active funds can charge up to 1-2% in investment manager fees while funds that tracked an index passively charged just 0.12% on average in 2022. These additional costs add up over time.

Below, we show how active funds increasingly underperform against their benchmark over each time period.

Fund Type1 Year
% Underperformed
5 Year
% Underperformed
10 Year
% Underperformed
20 Year
% Underperformed
All Large-Cap 51879195
All Small-Cap 57718994
Large-Cap Growth 74869698
Large-Cap Value 59698587
Small-Cap Growth 80598597
Small-Cap Value 41819192
Real Estate 88627487

As we can see, 51% of all large-cap active mutual funds underperformed in a one-year period. That compares to 41% of small-cap value funds, which had the best chance of outperforming the benchmark annually. Also, an eye-opening 88% of real estate funds underperformed.

For context, Warren Buffett’s firm Berkshire Hathaway has beat the S&P 500 two-thirds of the time. Even the world’s top stock pickers have a hard time beating the market’s returns.

2020 Market Crash: A Case Study

How about active funds’ performance during a crisis?

While the case for actively managed funds is often stronger during a market downturn, a 2020 study shows how they continued to underperform the index.

Overall, 74% of over 3,600 active funds with $4.9 trillion in assets did worse than the S&P 500 during the 2020 market plunge.

Stage of 2020 CycleTime Period% Underperforming S&P 500
CrisisFeb 20 - Apr 30, 202074.2
CrashFeb 20 - Mar 23, 202063.5
RecoveryMar 24 - Apr 30, 202055.8
Pre-CrisisOct 1 2019 - Jan 31, 202067.1

Source: NBER

In better news, roughly half underperformed through the recovery, the best out of any market condition that was studied.

The Bigger Impact

Of course, some actively managed funds outperform.

Still, choosing the top funds year after year can be challenging. Also note that active fund managers typically only run a portfolio for four and a half years on average before someone new takes over, making it difficult to stick with a star manager for very long.

As lower returns accumulate over time, the impact of investing in active mutual funds can be striking. If an investor had a $100,000 portfolio and paid 2% in costs every year for 25 years, they would lose about $170,000 to fees if it earned 6% annually.

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Markets in a Minute

Ranked: The Largest Bond Markets in the World

The global bond market stands at $133 trillion in value. Here are the major players in bond markets worldwide.

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The Largest Bond Markets in the World

The Largest Bond Markets in the World

In 2022, the global bond market totaled $133 trillion.

As one of the world’s largest capital markets, debt securities have grown sevenfold over the last 40 years. Fueling this growth are government and corporate debt sales across major economies and emerging markets. Over the last three years, China’s bond market has grown 13% annually.

Based on estimates from the Bank for International Statements, this graphic shows the largest bond markets in the world.

ℹ️ Total debt numbers here include both domestic and international debt securities in each particular country or region. BIS notes that international debt securities are issued outside the local market of the country where the borrower resides and cover eurobonds as well as foreign bonds, but exclude negotiable loans.

Ranked: The World’s Top Bond Markets

Valued at over $51 trillion, the U.S. has the largest bond market globally.

Government bonds made up the majority of its debt market, with over $26 trillion in securities outstanding. In 2022, the Federal government paid $534 billion in interest on this debt.

China is second, at 16% of the global total. Local commercial banks hold the greatest share of its outstanding bonds, while foreign ownership remains fairly low. Foreign interest in China’s bonds slowed in 2022 amid geopolitical tensions in Ukraine and lower yields.

Bond Market RankCountry / RegionTotal Debt OutstandingShare of Total Bond Market
1🇺🇸 U.S.$51.3T39%
2🇨🇳 China$20.9T16%
3🇯🇵 Japan$11.0T8%
4🇫🇷 France$4.4T3%
5🇬🇧 United Kingdom$4.3T3%
6🇨🇦 Canada$4.0T3%
7🇩🇪 Germany$3.7T3%
8🇮🇹 Italy$2.9T2%
9🇰🇾 Cayman Islands*$2.7T2%
10🇧🇷 Brazil*$2.4T2%
11🇰🇷 South Korea*$2.2T2%
12🇦🇺 Australia$2.2T2%
13🇳🇱 Netherlands$1.9T1%
14🇪🇸 Spain$1.9T1%
15🇮🇳 India*$1.3T1%
16🇮🇪 Ireland$1.0T1%
17🇲🇽 Mexico*$1.0T1%
18🇱🇺 Luxembourg$0.9T1%
19🇧🇪 Belgium$0.7T>1%
20🇷🇺 Russia*$0.7T>1%

*Represent countries where total debt securities were not reported by national authorities. These figures are the sum of domestic debt securities reported by national authorities and/or international debt securities compiled by BIS.
Data as of Q3 2022.

As the above table shows, Japan has the third biggest debt market. Japan’s central bank owns a massive share of its government bonds. Central bank ownership hit a record 50% as it tweaked its yield curve control policy that was introduced in 2016. The policy was designed to help boost inflation and prevent interest rates from falling. As inflation began to rise in 2022 and bond investors began selling, it had to increase its yield to spur demand and liquidity. The adjustment sent shockwaves through financial markets.

In Europe, France is home to the largest bond market at $4.4 trillion in total debt, surpassing the United Kingdom by roughly $150 billion.

Banks: A Major Buyer in Bond Markets

Like central banks around the world, commercial banks are key players in bond markets.

In fact, commercial banks are among the top three buyers of U.S. government debt. This is because commercial banks will reinvest client deposits into interest-bearing securities. These often include U.S. Treasuries, which are highly liquid and one of the safest assets globally.

As we can see in the chart below, the banking sector often surpasses an economy’s total GDP.

Banking Sector

As interest rates have risen sharply since 2022, the price of bonds has been pushed down, given their inverse relationship. This has raised questions about what type of bonds banks hold.

In the U.S., commercial banks hold $4.2 trillion in Treasury bonds and other government securities. For large U.S. banks, these holdings account for almost 24% of assets on average. They make up an average 15% of assets for small banks in 2023. Since mid-2022, small banks have reduced their bond holdings due to interest rate increases.

As higher rates reverberate across the banking system and wider economy, it may expose further strains on global bond markets which have expanded rapidly in an era of dovish monetary policy and ultra-low interest rates.

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