Want to invest on the inside track? Trading on insider information may be illegal, but the Claymore/Sabrient Insider ETF (AMEX:NFO) gives you a legitimate way to trade like an insider. The fund invests in an index that selects stocks based on insider behavior and analyst recommendations. And unlike your typical index tracker, this fund is out to beat the market.

The Claymore/Sabrient fund tracks the performance of the Sabrient Insider Sentiment Index. It's compiled based on the stock-buying trends of insiders who work within each company, and upgrades by the analysts who follow that company. Information on trading activity from top management, directors, and large institutional holders comes from public filing data. The Wall Street analyst upgrades come from the earnings forecast data compiled by Thomson's IBES.

Once the index is created, the fund then selects and holds a basket of the 100 highest-ranked companies, equally weighted. At the end of September, the fund's top five holdings, each at roughly 1.25% of the portfolio, were American Eagle Outfitters (NASDAQ:AEOS), Diodes (NASDAQ:DIOD), Cigna (NYSE:CI), Deckers Outdoor (NASDAQ:DECK), and Nordstrom (NYSE:JWN).

Claymore Advisors, a Lisle, Ill.-based firm, is the fund's advisor. (In case you're wondering, Claymore is named after the Scottish sword, not the land mine.)

Why insiders?
In theory, insiders buy because they're well-positioned to see long-term value in their company. Of course, this doesn't mean the stock's price will jump immediately. Still, insiders should know more about their company than anyone else. By that logic, watching what they do, and following suit in your own portfolio, could be a profitable practice.

Caveat investor
The Claymore/Sabrient fund has a limited performance history, since it only launched in September 2006. It might be worth waiting for a few years, or even a full market cycle, to get a better appraisal of the fund's performance.

Although the Claymore/Sabrient fund's fees are capped at 60 basis points (or 0.6%), that's still higher than what you'd pay for an index ETF. SPDRs (AMEX:SPY), for example, has an expense ratio of 0.1%. If you compare the fee charged by the Claymore/Sabrient fund with those of some of the more creative ETFs, you'll find the expenses fairly similar -- and cheaper than those of most actively managed mutual funds. (Get more info on exchange-traded funds in our ETF Center.) Foolish investors should also consider portfolio turnover expenses, which may be high, since the index on which the fund is based rebalances every quarter, and the fund must adjust its portfolio to match.

Insider trading and analyst upgrades provide two distinct and valuable viewpoints on a company. Still, I'm not sure these factors should be the only data fueling an investment strategy. The Claymore/Sabrient Insider ETF is an intriguing fund, and the concept may be a good one, but I'm inclined to wait until there's more performance history before buying in. The fund might be considered a fun investment at this point, but it would be small-f foolish to invest more than a small portion of your overall portfolio here.

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American Eagle is a Motley Fool Stock Advisor pick, while Deckers Outdoor made the cut at Motley Fool Hidden Gems . Try any of our Foolish newsletters free for 30 days .

Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She owns shares in SPDRs, but not in any of the other funds or companies mentioned in this article. The Motley Fool has a disclosure policy.