We highlighted in our blog on Tuesday about the high number of directors within FTSE 350 companies who were actively buying their own shares in the wake of the market sell off post Brexit vote, a trend which has continued in subsequent days.
Perhaps it is not enough just to commentate on insider transactions without looking a bit further into the detail and offering some context.
Lets consider the total monetary value of ‘post vote’ trades versus historical norms.
When looking at the FTSE 350 specifically, comparing the last week of purchases(net discretionary transaction value of $17m) to the net over last two years you can see that they seem relatively small in comparison. However, this may not offer a true reflection of the actual overall sentiment in the market.
Our analysis shows the histogram is skewed by a number of large asset purchases/sales in just a few individual names historically. A good recent analogy for this would be how a small number of large cash bets were made at the bookies for ‘Remain’ in the EU Referendum which swayed the market(incorrectly). There may well have been the equivalent cash laid out in £1 bets by ‘Leave’ individuals but was lower in impact due to the breadth of speculator.
We need to look at the distribution of purchases and it is here that we pick up something quite interesting. There have been 86 individual purchases and zero sales by UK company directors since the vote. The last time we saw purchases anywhere near this magnitude(62 buys vs zero sales) was in August 2011.
The performance chart of the FTSE 350 from that August makes interesting viewing. Similar peaks in insider purchases are also identified at the end of 2008, close to the market bottom during the height of the credit crisis.
Purely Coincidence Or Business Confidence ?
The seniority of individual and size of trade does not always guarantee success. Within each sector there can be company directors who produce consistently reliable results when looking at timing and performance of past transactions. OTAS provides a unique ranking system based on historically placed trades by insiders. Here are the top ten companies who have had director(s) purchase stock since Brexit and are most highly ranked based on previous performance. We can determine these aren’t just speculators….