Barron's Streetwise - Buybacks, Bond Doubts, DRAM, and T-Rex

Episode Date: October 2, 2026

It’s a listener question special. Family welcome. Choo-choo! Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Emily, what is the company policy on when you do a podcast and a staff member has a relative send a question in? I mean, they go straight to the top of the pile or is that a conflict of interest? How do we handle that? You know, with the proper disclosures and all rejection of gifts, I think we're pretty above board. Has Uncle John ever given you? When's the last time Uncle John gave you something good for a birthday? You know what? His signature's on the card.

But I think if it went to trial, we could say he had no partner. in it. All right. Let's take, this is the Barron Streetwise podcast. I'm Jack Howe with me, our audio producer, Emily Sumlin, and we'll hear in a moment from her uncle John. And from some other listeners, this is a listener question special. Do we have to do it? Am I supposed to do it? Let's get into it. If you would. Well, let's get into it. I have a list of some of the topics we're going to be hitting. We're going to be talking about a very popular semiconductor ETF. We're going to be talking about municipal bonds. We have a list of who wants me to change his mind about bonds altogether.

Why does he need him? But first we have a question from Uncle John from Atlanta. Emily, I'll ask you to read it. I'll leave it up to you whether to do an Uncle John impression or not. If my uncle was here, he would say, how about them dogs at the beginning and end of... Is it a big hot dog fan? Is this a Coney Island hot dog contest? How about them Georgia Bulldogs?

Of course, of course. But aside to that, and less importantly, I might add, He says, when an equity pays dividends or a mutual fund pays dividends, those buyback shares typically contribute to growth. So the percentage growth is always reported as the appreciation of the share. But he wants to know, where can you find this true yield of both appreciation as well as dividend disbursement and buyback? He would call that true yield. And he also says, yes, I am Emily's uncle and enjoy listening to the podcast because I get to hear from her. But your insights are great.

It's got me coming back. go dogs. Thank you, Uncle John. It's a great question. Now we've got three pieces here that we need to separate out. You're talking about the dividends that companies pay. You can express that as a dividend yield, the dividend payment has a percentage of the price. You're talking about the share price appreciation, the percentage by which the share price goes hopefully up over time. And then you're talking about the money that companies spend to buy back their shares. If we're talking about returns, we can add the price appreciation to the dividends, and that's a total return. We cannot also add the stock buybacks to that. The stock buybacks get factored into what

happens to the share price. The whole purpose of a buyback is to make shares less abundant, with fewer shares outstanding. It should theoretically make each share more valuable. The hope is that the share price would go up over time. Whatever the effect is of the stock buyback, it's captured in the movement of the share price. Okay, so that stock returns. We can, however, add buybacks to dividends and talk about total shareholder yield. Now, it's a theoretical figure.

You're not actually putting this money in your pocket as a shareholder, but your question might be, how much money is this company spending that's going directly to my benefit as a shareholder? How much is this company spending on shareholder goodies? One goody being a dividend payment, that's cash in the pocket, and another goody being a stock buyback. And if you want to know where you can go to find that combined shareholder yield,

well, it's not really that common of a measure to see on financial websites and stock screening tools. The reason is because dividends are typically fixed. Most companies, not all of them, but most companies state a dividend payment. They're going to pay this many dollars and cents per share. And then they stick to that as best they can over time and maybe periodically raise their payment. So you can ask at any given point, what's this company's dividend yield? And you can take the last stated dividend and calculate that as a percentage of the share price. You can't really do that with buybacks because what happens there is companies just spend as they're able to

and as they want to. They spend different amounts each year. And those amounts can fluctuate wildly. So whatever a company's buyback yield was last year, that's not at all representative of what it might be this year or next year. You can do this for any individual company. You can do this you like. You can just look at their financial statements. You'll see the amount of money they spent on common dividends. You can add that to the money they spent on buybacks. I would also net out any amount they have for share issuance. It's pretty common for companies to both buyback stock and issue stock at the same time. A company might pay some of its employees with stock, and then it might have buybacks to offset those payments, and then it might spend over and above those buybacks.

So what you want to know is the net amount of buybacks. Anyhow, you can add that to the dividend spending and create your own yield as a percentage of the stock market value of the company. By the way, if you want to see what this looks like in practice, there are ETFs that do this. One of them is called the Cambria shareholder yield ETF. The ticker there is S YLD. And that focuses on high cash distribution companies. They look at three forms of spending, dividends, buybacks, and debt paydown. and they call that collective amount shareholder yield.

If I look at the top holdings, I'm not at all surprised to see petroleum refiners well represented. Those companies are making great money right now. I see Marathon Petroleum, Valero, H.F. Sinclair. Other stocks include Manpower Group, Abercrombie and Fitch, and Tenant Healthcare. And if I look at how that fund has performed over time, the answer is not great if we're talking about the past five or ten years

relative to the S&P 500. Again, that's unsurprising. Growth stocks have raced ahead. Nobody's cared much about dividends. But year-to-date, dividends are doing well, and this particular fund is outperforming by about five percentage points. Hope that's helpful Uncle John and go dogs. Should I bark?

Yeah. Boo-b-b-v-v-v-woo. What was that? That was a dog? That was, is that good? I'm out of practice. I'm a little rusty. That sounded like, that sounded like,

When I try to start the wood chipper in cold weather. There's got to be a mascot for that, right? Okay, Emily, we have a listener who wants me to change his mind. Yes, we got a question from Jesse B about bonds. Hi, Jack, this is Dr. Jesse from Melbourne, Australia, an American living in Melbourne. My question is, why have bonds? They don't seem to do very well. They're not keeping up with inflation.

the 60-40 does seem dead. You talk about bonds like they will protect your portfolio. However, I'm 45. Do I really need to protect my portfolio? I need to grow it. Seems really dumb to even own bonds in the first place. Change my mind. Thank you, Dr. Jesse.

It's a provocative question. I'm not sure I will be able to change your mind and maybe you don't need bonds. Most people do, and I'll tell you why. It's not because the return. returns are so remarkable, although they're usually not as terrible as they have been over the past 10 years. I think the best guess on the future return for safe bonds is the yield you start at. Recently for the 10-year Treasury, that's been around 5.5% and a quarter percent.

The latest reading on inflation in the U.S. is 3.4% over the past year. So I think that's a decent starting point, but bonds historically have not returned anything close to what you could have gotten on stocks. and that certainly has been true in recent memory. The whole idea is this. You know that stocks can have severe downturns. During the global financial crisis from 2007 to 2009, the U.S. market lost just over half its value. During the dot-com bust that started around 2000,

the market lost just under half its value. Nothing tops the crash of 1929 and the Great Depression when the market lost more than 85% of its value. I wouldn't expect to see anything like that, but I think you do have to be prepared as a stock investor for the idea that your stocks can collapse in value by half. And you have to ask yourself, what would you do in that situation? And that's both a behavioral question and an economic question. Because when something like that happens, the news behind it is usually pretty bad.

The global financial crisis looked different from things that came before it. So did COVID. So did the dot-com bust. It could really shake an investor's confidence. It's a lot easier to ride something like that out if you have money in bonds at the time, especially if the government response to that is to cut interest rates to try to stimulate the economy. That usually drives the value of bonds up. You can sell some bonds and add money into stocks at lower prices.

Then there's the economic question. Stock prices are closely related with the economy, spending. What happens if you have a downturn in the stock market that drags the economy down with it? What if you have job losses? What if you lose your job? Maybe your job isn't at risk, Dr. Jesse, but that question is relevant for a lot of people. Those are not independent events,

the risk of a stock market crash and the risk of losing your job. One can affect the other. The idea is to avoid getting in a situation where you have to sell stocks at beaten down prices in order to provide money to live. It's easier if you can live off bonds during that downturn. So that's why many people choose to own bonds. The more money you have,

the less the risk that you're going to fall on hard times if your stock portfolio crashes. But even Warren Buffett in his 2013 letter to shareholders of Berkshire Hathaway talked about instructions for the trustee on behalf of his wife in the event of his death. He said he wanted to have 90% of the money put in a low-cost S&P 500 fund and 10% in short-term U.S. government bonds. One type of risk that investors should pay attention to is called Sequence of Returns Risk. And that means suppose you have a big downturn in the value of your stocks. It can matter a lot when in your life that happens.

What if it happens right after you decide to retire? Now you're living on your portfolio, your stocks take a beating. Let's say you have very little in bonds. You've got to spend out of this portfolio. You've got to take money by selling shares at depressed prices. You don't want that. That downturn becomes less important if it happens when you're very young or very old. So Dr. Jesse, I don't think I'm going to change your mind about whether

you need bonds. You don't really need bonds. But most people should have bonds because most people are subject to both the possibility of panic when stock prices fall and the possibility of needing some money. And by the way, that could come in the form of bonds or in the form of short-term bills or cash or money markets, just something safe. If you're as rich as Buffett, then the number to start with is probably 10%. If you're not quite there yet, then you should probably have something higher. Thank you, Dr. Jesse. Emily, that's two questions down. I see you're drinking from a giant Stein looking thing there. Is that from the company sparkling water dispenser? It is. What's your jam when you go to that thing? First of all, what flavor? Do you do the vitamin boost

and do you do the electrolytes and how much bubbles? There's a screen. There's a screen on this machine and you can touch for what you want. I'm a maximalist. I go full bubbles, full vitamins. I don't do electrolytes, I don't trust them. I don't quite know what that is. So it sounds like something that belongs in batteries, not in me. But I do everything else. And, you know, flavor, go ahead. What's your flavor? I go lime mint. That's what I do. Wow. All this time. It's like a mojito, right? Without the booze, is that what you're thinking? Yes, but I think you would have to be in the office more for us to have noticed that sooner. Oh, wait. I'm sorry. You're breaking up. I can't hear you. I'm going into a tunnel. That means it's time for a break. We'll be right back.

Welcome back to the big listener question special. We're two questions in. I think I'm going for three quick ones. Three quick ones after the break. What do you say, Emily? Can it be done? They said it couldn't be done, but I'd like to see you try. Did they say that?

I'm saying it, but I'll be so excited at the end. Okay. Let's see what happens. Who do we have first? First, we have a question from Drew. Let's hear it. Hey, Jack. Absolutely love the show and analysis.

Always makes me laugh while being informative. On a recent episode, you were accused of making dad jokes. I agree that was unfair. I would describe you as more of a cool uncle. Thank you, Drew. I'm no uncle John, but I do my best. How can I help you? In short, is the dollar a useful measure of earnings and valuations,

especially the S&P 500? The S&P keeps rising, and I keep hearing that the high valuations are justified because of high earnings. But with high inflation and constant dollar fluctuations since, especially 2020, is that high dollar measure dependable? I'd love to hear your thoughts. Is the U.S. dollar a useful measure of earnings and valuations, especially of the S&P 500? Yes, because these are U.S. companies that earn and report earnings in dollars.

I think what you're asking when you talk about high inflation and dollar fluctuations is, is the S&P 500 just high because we've had a lot of inflation? Has the price been inflated? And I guess the way I would answer that is to say that, everything has kind of been inflated at the same time. The cost these companies pay for their materials and their labor, the prices that they charge to their customers. One of the key benefits of investing in stocks over the long run is that companies have the ability to pass along inflation to customers. That helps them beat inflation over time. I don't think that S&P 500 earnings

are overstated because of inflation. I do think they might be unusually high for some other reasons. We've talked about this before. There's an investment boom right now going on in artificial intelligence, the building of all these data centers. U.S. companies are spending a lot of money with other U.S. companies. The spending generally doesn't subtract from earnings right away. It counts as capital expenditures, and it's deducted little by little from earnings over years.

But the money being received, all of that is booked right away as earnings. And so we have a condition right now where earnings in the U.S. are much higher than free cash flow. To give you a frame of reference, the price to earnings ratio for the S&P 500, it's 22 based on estimates for this year's earnings. But if we look at price to free cash flow, that's 33. So the market looks 50% more expensive based on free cash flow than on earnings. Which of those numbers is telling the real story? My guess is it's somewhere in between the two? Broadly speaking, if it turns out that these vast sums that are being spent right now,

on AI are going to see attractive returns on investment for years in the future, then I think these prices will probably be justified. If the ability to make money on all these investments fall short of expectations down the road, we might reach a point where we say, wow, the market was pretty expensive, and we didn't see it because earnings were a lot higher than they should have been. I don't think that's a reason to panic. There's more going on in this economy than just AI. I just don't think investors should expect growth or even returns

to remain quite this generous going forward. Emily, did I tackle Drew's question head on? Did I at least strike a glancing blow? Did I pass nearby? Did I create a breeze on my way by somewhere close? I kind of heard a whoosh. That was me. Well, I hope it was a useful whoosh?

Now, who do we have next? So this one is from Italy. It's Marco. A lot of this is compliments. And I'm going to skip over that. Compliments for me? Read three words. Assuming there are more than three words.

Read three words from the compliments. Go ahead. Oh. Oh, like a mad lives? Okay. You just have to pick one, random words. Difficult, humor, enjoyable. Difficult was part of the compliment?

All right. Well, you won't know. You only got three words. Sounds like a mixed review. It was all glowing, Marco. I'm not going to defame you. I'm difficult. Okay. All right.

I'll take your word for it. Okay. How can I help Marco? A few months ago, Marco bought the Round Hill Memory ETF with the ticker DRAM. DRAM. DRAM. Yes. Dynamic random access memory.

Got it. That's in my memory. Go ahead. Burned in. So Marco knows that one should fully understand what one owes before buying, but he didn't. So please don't judge him too harshly. He's having trouble understanding how the ETF actually works. So the ETF holds some companies directly, but obtains exposure to others through several swaps, while nearly 25% is invested in U.S. Treasury bills.

Why does it use swap in what role do the Treasury bills pay? Wouldn't it just be simpler to hold shares in all underlying companies directly? It definitely would be easier, but what if some of the markets you were investing in made it difficult for outsiders to buy shares? And what if you were investing in a tiny little niche market with a few giant players and you were facing rules about diversification or rules that prevented you from taking a certain ownership stake in one particular company? Then you might want to use derivatives to get your exposure. I don't have intimate knowledge of this particular fund,

but I'm guessing that that is what is at work here because the memory market is dominated by a few players and some of the biggest are in South Korea. And that's not an easy market to navigate for outside investors. On the website for this fund, they actually address this question. They have in a Q&A section that says, why does the Round Hill Memory ETF invest in total return swaps? The fund utilizes total return swaps in order to maintain compliance with RIC diversification tests.

RIC is regulated investment company. Oh my goodness, I'm just seeing there's also a leveraged version of this ETF called the Round Hill T-Rex 2x long DRAM daily target ETF. So glad they kept it succinct. Why T-Rex? It's got short arms? Year to date, the leveraged fund doesn't have a return because of course it was just launched in June and the fees are humongous. The T-Rex's arms are definitely long enough to reach its wallet to pay the

one and a half percent. That's the gross. Net one and a quarter percent annual expense. Ouch. It looks like a hot fund of the moment that's launched to capitalize on speculative fervor. If you've owned it over the past three months, you're down, you're down 45%. But I got off track. Back to the DRAM fund.

When you look at the top holdings of that fund, the here's what I mean. The top three holdings are Micron Technology, that's a U.S. company, Samsung Electronics, and S.K. Hynix. Those two are South Korean. And the percentage weightings are 26%, 25% and 22%. You can run afoul of diversification rules by putting such high percentages in one particular stock. But you don't have a lot of choice in this case because that's what the market looks like.

So you use derivatives to get the exposure you want while sticking to the rules. And you asked about the treasury bills and the role they play. That's just collateral. You have those on deposits so that you can own the derivatives. So that's the answer, Marco, to your very specific question about the structure of that fund. If you're wondering more broadly, what the heck do I own here and why would someone own this? This is a very concentrated bet on memory, which is something that has been in fierce demand and short supply at a time when companies are spending so much to build AI data centers.

And that has sent the price of memory skyrocketing. And the impact on profits for these companies has been really profound. If you look at Micron Technology, for example, in its last fiscal year, its fiscal year runs through August. So if you look at its fiscal year running through August 2025, it earned just over $8 a share. For its latest fiscal year, the one running through this past August, it's expected to have earned more than $70 a share. At the time of this recording, we're waiting for Micron's fourth fiscal quarter results in a couple of days. By the time you hear this, they'll be out. But still, the idea there is nearly 800% growth in a year.

And in the fiscal year that we've just started for Micron, its earnings are expected to more than double from that. It's become one of the biggest growth drivers in the S&P 500. If you've owned Micron Technology stock over the past three years, you've made 1,500%. But a bet on this ETF is a bet that that's going to continue into the future, that the good news isn't already priced in. I can't tell you which way that ETF is head.

I would expect plenty of volatility, especially for its short-armed cousin there, the T-Rex fund. What was the ticker? The ticker on that one is RAM. Both of these funds, DRAM and the leveraged version RAM, I would characterize as for speculative investors, investors who don't mind a lot of volatility. I hope that answers your question. Thank you, Marco. Emily, say thank you in Italian for Marco, if you would, please. Grazie, Marco. And we have one left, Emily. We've got Trenton from Charlotte, North Carolina.

And he's recorded his question for us. Perfect. Let's hear it. Hey, Jack. Long-time listener and first-time caller. I had a quick question for you about bonds. On the show, you've talked a little bit about how bonds are generally not performing super well over the past five years. And you offered some alternatives on the show like Fallen Angel bonds, commodities, emerging market funds.

I was curious how municipal bonds. are performing. And if there were any certain sectors in the Muti bond market, that might be better than the rest. I know in my town, Charlotte, North Carolina, they're issuing more bonds to finance a railroad that's going to go through the town for public transportation. Is that something I should buy? Any detail would help. Thanks. Thank you, Trenton from Charlotte. What if Trenton from Charlotte met a Charlotte from Trenton? Is that sort of thing ever happened on that show you watch? What is that Love Island?

Love Island. Is that the sort of thing that happens there? I think Trenton's probably too classy to be on that program. Oh. And hopefully Charlotte from Trenton would be as well. Sorry. Sorry Trenton and Charlotte. I had no idea it was that kind of program.

All right. We don't probably talk enough about municipal bonds. These are bonds. You might just call them tax-free bonds. These are bonds issued by municipalities and because they're considered to be for the common good, the interest that they pay is allowed to be tax-free. That's in most cases anyhow.

There is something weird called tax-moneys, but let's just deal with the tax-free ones. Generally speaking, you don't pay federal taxes on any of these bonds, and you don't pay state taxes if you buy bonds issued by the state where you live. And sometimes you can even get triple tax-free bonds if you buy bonds in your city. And as with corporate bonds, there are all different credit ratings, and some of them are insured. to achieve a AAA rating.

And those are the basics. Are municipal bonds a good deal? That is not a static, never-changing condition. That's something that changes relative to the price of taxable bonds. And right now, I would say the deals are just so-so. Demand is pretty strong for these bonds. There's been plenty of issuance, but demand has been strong too. Most bonds have performed poorly over the past 10 years.

Municipal bonds are no exception. we can compare, for example, the Vanguard tax-exempt bond ETF. The ticker there is VTEB. Over the past 10 years there, you've had some price declines as bond yields broadly have risen, but you've collected interest along the way, and the result is an annual return of 1.4%. Not great. But it's a little better than the return you've seen on Vanguard total bond market. That's a taxable bond ETF, BND.

That one's about 1.1% a year. What really matters is what's your yield now? And the answer on that tax-free Vanguard fund, V-T-E-B, is about 4.1%. So what you can do, Trenton, is you can ask yourself the question, what would I have to get on a taxable bond to equal 4.1% on a tax-free bond? And to know that, you have to know your tax rate. But here's how you calculate it. For the math averse, you might want to hold your ears for this part.

You divide the yield by the reciprocal of your tax rate. What do I mean by reciprocal? Let's say you pay 25% in taxes. Express that as a decimal. Point two five. Now take one minus that number. One minus point two five is point seven five. Okay, so we're going to take our yield on that Vanguard tax exempt fund,

4.1%, call it, and we're going to divide it by point seven five. And that gives us 5.47%. That's what you would have to get on a taxable bond to be just as good as that tax-exempt yield. I'm oversimplifying things a little bit. This fund is a national fund. It's going to own bonds from all different states. So you're going to get a federal tax break, but the break you get on state taxes is going to be minimal.

You can also find other ETFs that specialize in just bonds from your state. Could you find 5.5% on a portfolio of high-quality intermediate corporate bonds? I think you probably could. Vanguard itself has another fund VCIT, that's intermediate term corporate bond ETF. The yield there is just over 5.7%. The quality is a little lower. That fund is mostly in single A and triple B bonds, whereas the Muni fund is concentrated around double A bonds. Now, of course, everything changes if you're in a much higher tax bracket. The higher tax bracket you're in, the better deal tax-free bonds are for you. sure we'll get a chance down the road to talk with a Muni expert about where the best deals are in

that market now. For now, Trenton, I'd say tax-free bonds are not automatically a good deal here. They're not automatically better than you can do in taxable bonds. You can do the math for yourself and see where you stand. Thank you, Trenton, and I hope you love the new commuter rail line in Charlotte. It's no Chattanooga-choochoochoo, but I'm excited to see what y'all turn out. It's hard for me to compare the two because one is a future project that I have. haven't looked into at all, and the other is a million-year-old song that I'm only vaguely aware of. But other than that, I also want to thank Marco, Andrew, and Dr. Jesse, and Uncle John, and thank all of you for listening.

Emily Sumlin is our audio producer. Do you have a question for the podcast? Are you related to Emily? Even if you're not, go ahead and send it in. It could be in a future episode. You just tape your question on the voice memo app on. your phone, you send it to jack.how, that's H-O-U-G-H at barons.com. You can subscribe to the podcast on Apple Podcasts, Spotify, YouTube, and elsewhere.

Thanks and see you next week. Hey, now, is that a Chattanooga song that I'm not going to get sued for? It might not be in the public domain. Choo-choo, no sue.