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3 ETFs to Benefit from Solid Insider Buying

Sanghamitra Saha

The U.S. markets do not seem to tire of hitting highs especially with the Trump rally starting afresh. President Trump’s indications of a tax overhaul in a few weeks, intentions of beefing up public infrastructure spending by hundreds of billions of dollars on infrastructure and a less-than-feared embargo on foreign trade relations brought the mojo back in the market (read: 5 High Beta ETFs & Stocks for a Soaring Market).

His meeting with Japan’s Prime Minister Shinzo Abe and conformity to the "one China" policy on Taiwan give cues of lesser glitches on trade terms going forward. Meanwhile, earnings growth for the S&P 500 is ontrack to reach the highest level in two years, giving the market another reason to be bullish.

Now the question is, who is driving market to such lofty levels? Are only retail investors pushing up the indexes? Probably not, as per the source, insider buying is soaring as market is hitting all-time highs frequently. With the fourth-quarter reporting season gradually drawing to a closer, the scope for executives to buy or sell shares is increasing, leading to a huge rise in the number of buyers. Though the volume is way lower than this time last year, the segment is seeing a gradual increase. This could be a promising sign. Let’s tell you why:

Inside Insider Buying

The buying of a company’s shares by its own employees is called insider buying. Strong insider buying shows that the company’s officials are hopeful about the stock. It could be because of the fact that company’s officials are about to launch some new products and anticipate the stock to soar ahead or because the employees find the stock trading at cheaper valuation. Whatever the case, solid insider buying means the stock is moving toward to the high-flying zone.

So, if you want to cash in on the bullish signals sent by corporate insiders, you can very well play these below-mentioned ETFs (read: 5 ETF Investment Ideas for 2017):

ETF Picks

Guggenheim Insider Sentiment ETF NFO

The 101-stock fund looks to track Guggenheim Nasdaq US Insider Sentiment Index and offers exposure to companies with strong corporate insider buying. The fund also focuses on companies with compelling share prices. No stock accounts for more than 1.35% of the fund, resulting in low company-specific risks. For this relatively unique exposure, the fund charges 60 bps in fees. IT, Health Care, Real Estate, Industrial and Utilities hold double-digit allocation in the fund.

Direxion All Cap Insider Sentiment ETF KNOW

The fund looks to follow the Sabrient Multi-Cap Insider/Analyst Quant-weighted Index. It is heavy on the financial sector (31.13%) followed by IT (15.51%). The index puts more focus on Valero Energy (2.63%), Prudential Financial (2.55%) and Travelers Cos (2.50%). The fund charges 65 bps in fees.

PowerShares Buyback Achievers Portfolio PKW

A plethora of buybacks are expected to hit the market this year in Trump presidency. In his campaign, Trump had called for a repatriation holiday of 10%. In fact, reducing corporate taxes has been an integral part of his agenda (read: Will Buyback ETFs Gain Big on Overseas Cash Repatriation?).

It is believed that U.S. companies are hoarding $2.6 trillion in cash overseas equivalent to almost 14% of the total U.S. gross domestic product. If a move like repatriation holiday materializes, U.S.-based companies will not feel uncomfortable to repatriate their income earned from a foreign country and deploy savings in repurchasing their own shares.

PKW tracks the NASDAQ US Buyback Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. The 235-stock fund charges 63 bps in fees. It puts over 20% of its portfolio in the Financials, Industrials and Consumer Discretionary sectors each.

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