There's nothing like stirring up a little rivalry between our two mining heavyweights Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP).
Investors often think of the two as being on the same side from an investment strategy perspective, but the two majors are pursuing very different strategies to create shareholder wealth.
The question is who is going to come out on top.
Rio Tinto has elected to do a $500 million off-market share buyback as part of its $US2 billion ($2.5 billion) capital return program, while BHP is planning to spin-off non-core assets into a separate $US13 billion listed entity called South32.
BHP's move gets my tick of approval as history has shown that spin-offs have created material shareholder value, as I wrote a week ago.
However, the jury is still out for Rio Tinto's strategy, although there is some evidence showing that buybacks have preceded periods of outperformance, particularly if the buyback is undertaken by a large cap.
The impact of buybacks is significant not only for Rio Tinto shareholders as a number of companies have announced similar strategies this year. This includes Orica Ltd (ASX: ORI), Fairfax Media Limited (ASX: FXJ), Boral Limited (ASX; BLD) and Amcor Limited (AMC).
Research done by Macquarie looking at 400 buybacks in Australia found that the market reacts positively to buyback news with a company's share price outpacing the broader market by 1.6% (the outperformance is called alpha) on average on the day of the announcement.
There is also a longer-term positive impact from buybacks with buyback candidates generated an average alpha of 3.4% over 12-months and 9.1% over 24-months.
But Rio Tinto shareholders shouldn't get too excited. The problem is that off-market buybacks don't tend to enjoy this benefit as compared with on-market buybacks, according to the broker.
As the chart below shows, companies that go off-market only enjoy a positive alpha over a very short run.
On the other hand, spin-offs have historically produced 14% alpha and the parent entity 1%.
What's that saying again? That history never repeats, but it rhymes? In that spirit, there's no certainty that Rio Tinto's strategy will be less value accretive than BHP's spin-off.
However, I suspect I am going to be happier with my holdings in BHP than Rio over a 12-month investment horizon.
