Active investors are always looking for a unique way to gain an edge in their portfolios, and following stocks with insider activity can be one way to highlight strong company conviction.
When corporate executives are reinvesting in the companies they govern, they tend to believe in the long-term growth story and value proposition of their business.
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One way to track stocks with insider activity is through an ETF that's designed to highlight companies with favorable corporate insider buying trends (as determined by public filings) and analyst upgrades.
The Guggenheim Insider Sentiment ETF (NYSE:NFO) debuted in 2006. It is based on an index that selects 100 U.S.-listed stocks based on filings of corporate insider activity and Wall Street earnings estimate increases. This ETF has more than $175 million in total assets and charges an expense ratio of 0.65 percent annually. Top holdings in he Guggenheim Insider Sentiment ETF include Chipotle Mexican Grill (NYSE:CMG) and Alcoa Inc (NYSE:AA).
One of the benefits of this unique index is that stocks are selected according to fundamental data and are equal weighted.This allows for a balanced cross-section of market capitalizations and sectors, with every stock having a similar pull on the performance of the index.
So far this year, NFO has experienced a roller coaster ride of volatility that has it clinging to stay in positive territory. July in particular saw a decline of 4.70 percent, as weakness in small caps dragged on performance.
Another similar ETF in this space is the Direxion All Cap Insider Sentiment Shares (NYSE:KNOW). This index focuses closely on corporate insiders accumulating company shares and reviews constituents monthly to determine if new holdings should be rotated in.
According to the fund fact sheet, the Direxion All Cap Insider Sentiment Shares is primarily made up of large- and mid-cap companies with an emphasis on technology and financial stocks. In addition, weightings within the index are based on the concentration of insider transactions and analyst ratings. This ETF charges a net expense ratio of 0.65 percent and has more than $22 million in total assets.
Both of these funds offer a unique and diverse selection of stocks that may provide a fundamental investment edge.
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