One way is to consider an ETF that seeks to invest in stocks with heavy insider buying: the Guggenheim Insider Sentiment ETF (NFO).
The methodology behind the construction of the underlying index, the Sabrient Insider Sentiment Index, has two components: favorable insider buying trends and rising earnings estimates. Adding earnings into the equation helps control for the factors noted above by assuring that the fundamentals of the stocks it holds are headed in the right direction.
This strategy has delivered outstanding results over time, performing even better than the advocates of using insider buying as a signal may expect.
Since its inception on Sept. 21, 2006, NFO has produced an average annual total return of 10.71%. The Russell 3000 Index, which Sabrient uses as the benchmark for the strategy, returned 7.49% in the same interval, while the SPDR S&P 500 ETF (SPY) checked in with an average annual return of 7.01%. The difference between NFO and SPY on a $100,000 portfolio in that time period: a whopping $47,770 ($213,480 vs. $165,710).
This demonstrates that insider buying — when accompanied with an approach that takes fundamentals into account — is an important driver not just of short-term performance, but also long-term returns. And the best part about having an ETF for this strategy: Investors have the opportunity to mine this eclectic portfolio for their own individual stock ideas.
The top 10 holdings in the Guggenheim fund are shown below, and the full listing of portfolio holdings can be found here.
|Green Mountain Coffee Roasters||GMCR|
|Albany Molecular Research||AMRI|
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.