There is an old expression about a company’s insiders buying and selling of the firm’s shares. The simple way of explaining it is insiders sell their employer’s stock for multiple reasons, not all of which are bad, but they only buy for one reason: Because they believe the stock is headed higher.
The Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) brings positive insider action to the ETF wrapper and the 2014 results are noteworthy. Year-to-date, KNOW has surged 17.7%, topping the S&P 500 by 540 basis points along the way.
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. [Insider ETFs Have Advantages]
For example, KNOW’s roster (currently comprised of 100 stocks) is reviewed on a monthly basis and insider buying is not the only factor taken into account.
KNOW’s 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. [Get in the Know With This ETF]
“It’s a well-known strategy in the hedge fund space,” said Direxion Investments Senior Vice President Mike Eschmann in a recent interview with ETF Trends. “Essentially, you’re looking at companies where insiders are buying up shares of that company in the open market. The strategy looks at strong insider and analyst revisions.”
None of KNOW’s top-10 holdings accounted for more than 2.7% of the ETF’s weight at the end of the third quarter. That group included familiar names, such as Kohl’s (NYSE: KSS) as well as Dow components Microsoft (NasdaqGS: MSFT) and Travelers (NYSE: TRV).
KNOW also sporting a value tilt with a combined 47.5% of its weight allocated to financial services and consumer discretionary names. Not only is that a sign that insiders at companies from those sectors see value in what have been lagging sectors to this point this year, but also that investors should consier KNOW now because consumer discretionary and financial services ETFs have recently been perking up. [Missing Out on the Discretionary ETF Rally]
KNOW, which charges 0.65% per year, has a beta 1.19 against and a correlation of 0.93 to the S&P 500, according to Direxion data.
Direxion All Cap Insider Sentiment Shares
