Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW’s insider sentiment strategy.
Earlier this month, KNOW, which debuted in December 2011, earned the prestigious five-star rating from Morningstar. Perhaps it is just a coincidence, but since that time, KNOW’s shares outstanding tally has surged 25% as the ETF has added more than $10 million in new assets since the start of 2015.
“The insider buying theme is a sensible strategy that is really starting to resonate with investors. The consistent and outstanding performance of KNOW over the past 3 years is tough to ignore. The fact that Morningstar has awarded the fund 5 stars has helped increase awareness, and as result we have seen significant growth in assets over the past few weeks,” said Direxion Investments Senior Vice President Mike Eschmann in an email to ETF Trends. [A Look at the Insider Sentiment ETF]
Accolades, such as the Morningstar rating are nice and make for great marketing fodder, but what investors should focus on is an ETF’s ability to generate total returns. KNOW has done that. Using a uantitative selection strategy picks holdings based on the number of open market purchases by major corporate insiders and percentage gain in shares per each insider’s purchase; the number of positive revision to price appreciation estimates; and growth trends, valuations and earnings quality, KNOW has returned nearly 45% over the past 24 months. The S&P 500 has climbed 33.3% over the same period. [Accolades for an Insider Sentiment ETF]
Most investors have a cursory overview of how a company performs, but corporate executives or high-stakes shareholders will typically be more involved or have more knowledge about the finances of the companies. Consequently, the average retail investor can gain greater exposure to those in the know through insider sentiment ETFs like KNOW.
KNOW tracks the Sabrient Multi-Cap Insider/Analyst Quant-weighted Index, which provides investors access to stocks that corporate officers, directors and shareholders who own more than 5% of each S&P 1500 stock are accumulating. Although KNOW is a passive fund, there are some active elements to the ETF’s methodology.
For example, Direxion reviews KNOW’s holdings monthly, not a common trait among passive ETFs. KNOW also considers analyst revisions along with insider buying trends.
Direxion All Cap Insider Sentiment Shares