INK Canadian Insider Index beat the S&P/TSX Composite by 5% annually

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Over the years, at INK we have been sharpening our focus on insider commitment: the amount of stock that public company officers and directors are buying and holding. Insider commitment forms the foundation of the rules-based INK Canadian Insider (CIN) Index. Our index process equally considers insider commitment with valuations and price momentum to identify 50-stocks which as group should offer attractive opportunity in the Canadian market.

Does it work? Or as a Globe and Mail writer recently asked when looking at the Horizons Cdn Insider Index ETF (HII) which uses the index, is it a solid strategy or gimmick? Instead of relying on opinion, let's look at the data.

This week marked the 3-year live anniversary of the mid-cap oriented INK CIN Index. The chart below shows the performance of the INK CIN Index (blue) versus the S&P/TSX Composite Index (both price).

As the years rolled by, the gap between the two indices grew wider. The total return numbers in the table below also tell the story in relation to risk.

The 3-year annualized INK CIN Index total return was 10.39%, outpacing the S&P/TSX Composite Total Return Index which generated 5.04%. Our insider-based index did it with less volatility which yielded solid risk-adjusted returns as shown by the information ratio which is over 1.

Our philosophy in constructing the INK CIN Index in the wake of the great financial crisis was to design an index that tracks value and momentum opportunity in the Canadian market which is confirmed by insiders. The objective was to provide investors with an index that could be used as a benchmark to indenify broad opportunity and evaluate the performance of their Canadian equity portfolios. You can take a closer look at the history of our index and its methodology via our index website.

Why has the index strategy worked? We'll turn to the words of that great Canadian entrepreneur Seymour Schulich who said, "When you're investing in stocks, your chances for such success are greatly improved when you pick companies where officers and directors own a large amount of stock."

One final fun fact. We continue to hear how the Canadian market lacks opportunity compared to the United States. In response to that, we'll point out that the local currency annualized total return of the SPDR S&P 500 ETF (SPY*US) for the 3 years ending November 13th was 10.39%, the same as the local currency total return of the INK Canadian Insider Index.

 

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