When a company’s top executives buy large blocks of shares in their own company, so should you, according to the portfolio manager for the Catalyst Insider Buying Fund.
Launched two years ago, the mutual fund buys equities based on the activity of the top executives—usually the top three to five—in the company, says David Miller, portfolio manager.
“Everyone else who manages a fund is trying to pick stocks,” says Miller. “We feel that the CEO and CFO of the company know best what the company is going to do. If they are buying large blocks of stock above their stock options, then that is a good bet the company is going to do well.”
The Catalyst Insider Buying Fund (INSAX) invests in large-cap companies where the executives have bought about 10,000 or more shares. It usually has about 30 companies in the portfolio with an emphasis on companies with at least $10 billion in capitalization. An initial investment of $2,500 is required.
Right now the fund is investing heavily in energy, health care, financials and life sciences, but that can change depending on where the insiders are buying, Miller says. Miller is co-founder and senior portfolio manager of Catalyst Capital Advisors LLC, the fund’s investment advisor firm.
“There are other firms that are made up of companies where buying is heavy, but we eliminate the stock option activity and the pension funds that own a lot of stock,” says Miller. “The fund stays away from companies where executives are dumping stock.
“Our system makes more sense than indexing or trying to actively manage the fund and pick from thousands of companies.”
The fund has gained 19 percent since it launched on July 29, 2011, compared to 14 percent for the S&P Index. The objective of the fund is long-term capital appreciation.
To determine which company executives are buying or selling large blocks of stock, the fund uses information filed by company leaders with the SEC.