Horizons ETFs Management (Canada) Inc. (Horizons ETFs) has launched Horizons Cdn Insider Index ETF (TSX:HII), an exchange traded fund that uses insider commitment to select and confirm the performance potential of its stock holdings.

The new fund began trading Wednesday on the Toronto Stock Exchange.

Insider commitment refers to the purchase and ownership of shares in a corporation by an officer or director of the company. Insiders who hold equity have a financial interest in the success of their firm. This can make insider commitment data a powerful confirmation signal of an investment when combined with traditional valuation and price momentum indicators, Horizons says.

The new ETF seeks to replicate the performance of INK Research Corp.’s INK Canadian Insider Index, net of expenses. The index is designed to provide exposure to the performance of 50 TSX-listed stocks which, amongst other things, demonstrate significant amounts of insider buying and ownership.

“The team at INK Research believes insider commitment can be a powerful way to confirm the future growth potential of a stock, since a high level of insider commitment at a company means that those with the most profound understanding of a company — its officers and directors — remain committed to the future prospects of their firm,” said Howard Atkinson, president of Horizons ETFs, in a news release.

The issuers included in the index are selected based on INK’s proprietaryscreening criteria — a three category, equal-weight methodology of valuations, insider commitment and price momentum.

“HII’s strategy, which puts an equal weighting on valuations, insider commitment and price momentum, provides the potential for outperforming the broader Canadian stock market, as it selects issuers that tend not to be as widely held by larger-cap indices,” Atkinson said.

“We’re proud to be partnering with Horizons ETFs in launching the first ETF in Canada that explicitly uses insider commitment as one of the core metrics in its investment strategy,” said said Ted Dixon, CEO of INK Research. “On its own, insider commitment may not be able to highlight stocks with future growth potential, but when you combine this analysis with value and price momentum indicators, there can be an opportunity to outperform the broader markets.”