There are two forms of insider trading. The nefarious variety that makes for attention-grabbing headlines and the type that pertains to high-ranking executives buying shares of their companies. When it comes to legal insider trading, there are multiple reasons why c-level executives and directors sell shares and not all are negative. However, there is only one reason why they buy shares of their employer: Because they think the stock is going higher.

The Guggenheim Insider Sentiment ETF (NYSEArca: NFO) is the fund with which investors can play insider buying trends. While the concept behind NFO may seem novel, even hyper-focused, the results are nothing to scoff at. NFO is up nearly 21% year-to-date and has returned 52% over the past two years, slightly outpacing the S&P 500 along the way. [Another Market-Beating Niche ETF]

NFO, which has about $135.5 million in assets under management, tracks the Sabrient Insider Sentiment Index. The index “is comprised of approximately 100 securities selected, based on investment and other criteria, from a broad universe of U.S.-traded securities, including MLPs, and ADRs,” according to Guggenheim.

The trick with many niche ETFs, be they buyback, spin-off or insider trading funds, is to prove to investors there are really no tricks at all behind the ETF and that its concept is a legitimate one. Following legitimate insider trading has been proven to be a way generating positive returns.

“It’s been empirically shown that insider trading trading has beaten the market indexes for 50 years,” according to Insider Monkey. “Academic studies have been publishing this for 40 years.”

Company executives are usually buying with long-term holding periods in mind. They are not looking for a quick trade if for no other reason than that they are required by law to disclose their purchases and sales. A sale of a block shares purchased just a few weeks earlier could give the impression that the executive thinks his company’s shares are now appropriately valued with limited future upside. Investors would react, increasing selling pressure on the stock and no executive would willfully look to create such a scenario. [Are Specialty ETFs Right for You?]

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