As investors look for new ways to build out their investment portfolios, many have turned to smart beta or alternative index-based exchange traded funds that can potentially diminish risks or enhance returns.
For example, the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been a quietly outperforming. Since its inception in December 2011, the fund has returned 16.5% annually.
According to Morningstar data, KNOW has ranked in the 5th percentile over the five-year period, generating a 16.1% average annualized return, compared to the S&P 500’s 13.8% average return.
Helping ETF investors capture higher returns, KNOW provides “insider” access to stocks that are being most heavily accumulated by corporate officers, directors and major shareholders and serves as intelligent overlay that isolates stocks that are expected to outperform, according to a note.
Using a quantitative screening methodology that focuses on open market purchases along with positive analysts valuations, the ETF provides access to a disciplined rules-based approach based on positive corporate insider transactions and favorable analyst ratings, with investors “in the know” to pursue excess portfolio returns.
Specifically, the 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.
Most investors have a cursory overview of how a company performs, but corporate executives or high-stakes shareholders will typically be more involved, have more knowledge about the finances of the companies or be in-the-know. Consequently, the average retail investor can gain greater exposure to those in-the-know through the insider sentiment ETFs.
Current top holdings include HP Inc 2.7%, Aflac Inc 2.6%, Chico’s FAS Inc 2.4%, Prudential Financial Inc 2.4% and Evercore Partners 2.4%.
Top sector weights include financials 21.9%, consumer discretionary 17.6%, information technology 14.4%, healthcare 12.9% and industrials 8.6%.
Potential investors should also note that Direxion has announced it will execute reverse share splits for KNOW at 2 for one – investors will receive two shares for each share held – on May 1.
For more information on alternative index-based strategies, visit our Smart Beta Channel.