Although little research investigates asset managers’ use of insider trading data in their decision processes, there is good reason to believe that at least a small portion of the asset management industry uses this data. After all, a number of renowned investors and researchers have been saying that the use of insider trading can complement one’s investment strategy.
As a general rule, hedge fund firms are extremely secretive and don’t usually reveal how they go about picking their investments and analyzing those investments, but there is a handful of well-known money managers who claim they make use of insider trading data. For instance, successful hedge fund manager Joel Greenblatt, the founder of Gotham Capital, has previously revealed that he takes into account insider trading data. He also suggested that the so-called insider trading anomaly is more prevalent in small and somewhat distressed companies, with the source of abnormal returns from insider trading being related to information asymmetry and insiders having information advantage. The Insider Monkey team processed the Form 4 filings submitted with the SEC on Thursday and pinpointed five companies with noteworthy insider transactions recently.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
The Daughter of Single-Family Property REIT’s Founder Purchases Shares
Let’s begin our discussion of noteworthy insider trading by analyzing the recent insider buying observed at American Homes 4 Rent (NYSE:AMH). Board member Tamara Hughes Gustavson, the daughter of the founder of American Homes 4 Rent, purchased 76,985 Class A shares on Wednesday and 3,696 shares on Thursday at prices varying from $20.47 to $20.60 per share. Ms. Gustavson, the daughter of B. Wayne Hughes, currently holds an ownership stake of 12.98 million shares following the recent purchases.
The publicly-traded REIT focusing on single-family rental homes has seen its market capitalization rise by 23% since the beginning of the year. In mid-October, analysts at JMP Securities started coverage on American Homes 4 Rent (NYSE:AMH) with a ‘Market Outperform’ rating and a price target of $25, citing “outsized” expected rent growth over the next two to three years. As the REIT operates the largest public single-family rental portfolio in the United States, American Homes 4 Rent will benefit strongly from a continued increase in rental rates for single-family homes that has been driven by significant occupancy improvement. Jason Karp’s Tourbillon Capital Partners cut its holding in American Homes 4 Rent (NYSE:AMH) by 21% during the third quarter to 7.82 million shares.
The next two pages of this insider trading articles will lay out more insider transactions reported with the U.S. stock market regulator on Thursday.