By Paul R. La Monica

The money manager Tweedy, Browne, is betting on stock purchases by corporate insiders as a guide to what value stocks are poised to rise with the first exchange-traded fund in its more than 100-year history.

It isn't clear whether the Tweedy Browne Insider + Value ETF, launched at the end of last year, will be a long-term winner. But so far, the results are promising.

The ETF has gained nearly 5.5% so far in 2025, compared with a more than 4.5% drop for the S&P 500. Its top holdings are a mix of international blue-chip stocks such as Burberry and Banco Santander, as well as lesser-known U.S. companies such as the trading firm StoneX and small-cap insurer HCI Group.

John Spears, a managing director with Tweedy, Browne, told Barron's that the company has always looked at insider purchases, particularly from top C-level executives and board directors, as one factor when determining what stocks to buy. "It widens the shopping aisle," he said, adding that it is especially telling when insiders are buying when the market has hit a rough patch.

"There is definitely a correlation between general market downturns and insider purchases," Spears said. "Insiders are often contrarian and bet against analyst opinions."

With that in mind, Tweedy, Browne recently wrote a white paper about insider buying. It found that based on several academic studies, stocks with relatively low price-to-earnings and price-to-book ratios, coupled with notable insider buying, tended to outperform both the broader market and higher-priced stocks with insider buying.

"Ultimately, there is only one logical reason for corporate insiders to reach into their wallets and make free-will, open-market purchases of their own companies' shares -- they believe the stock price will increase," the white paper said. "They do not buy their stock with the intention of losing money!"

None of the Magnificent Seven stocks are in the fund. But the ETF does own several notable U.S. stocks in addition to international companies. The firm highlighted home builder Beazer Homes, oil services company Tidewater, drilling rig operator Helmerich & Payne, and trucking firm Heartland Express as top picks.

All four stocks are down about 15% to 25% this year. But Tweedy, Browne noted that a director at Beazer bought $500,000 worth of shares in February following a disappointing earnings report. What is more, the stock is cheap, trading for less than seven times the earnings per share forecast for the coming 12 months. Beazer has also been buying back its own stock.

Tidewater, Helmerich & Payne and Heartland Express have all reported that their CEOs bought stock in the past few months. That could be an encouraging sign.

"Combine undervaluation with material purchases by knowledgeable insiders and you can often find excess returns," said Bob Wyckoff, another Tweedy, Browne managing director.

Of course, far more many insiders sell stock than buy. And insider selling at the end of 2024 was notably high given Wall Street's record run.

But if the market remains this choppy as investors worry about tariffs and inflation, don't be too surprised to see corporate insiders scoop up more of their companies' shares.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 18, 2025 12:21 ET (16:21 GMT)

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