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AOL, Inc. (AOL): Here’s Some Bad News

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AOL, Inc. (NYSE:AOL) investors: here’s some bad news.

Now, according to many traders, hedge funds are seen as delayed, outdated investment vehicles of an era lost to time. Although there are more than 8,000 hedge funds trading in present day, this site aim at the bigwigs of this group, about 525 funds. It is assumed that this group oversees most of the smart money’s total capital, and by monitoring their best equity investments, we’ve uncovered a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (find the details here).

Equally as crucial, optimistic insider trading sentiment is another way to look at the stock market universe. There are plenty of reasons for an executive to downsize shares of his or her company, but only one, very clear reason why they would initiate a purchase. Several academic studies have demonstrated the impressive potential of this tactic if piggybackers understand what to do (learn more here).

AOL, Inc. (NYSE:AOL)

Now that that’s out of the way, it’s important to discuss the recent info for AOL, Inc. (NYSE:AOL).

Hedge fund activity in AOL, Inc. (NYSE:AOL)

Heading into Q3, a total of 19 of the hedge funds we track held long positions in this stock, a change of -14% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly.

According to our 13F database, D. E. Shaw’s D E Shaw had the largest position in AOL, Inc. (NYSE:AOL), worth close to $118.8 million, comprising 0.2% of its total 13F portfolio. On D E Shaw’s heels is David Cohen and Harold Levy of Iridian Asset Management, with a $101.2 million position; 1.3% of its 13F portfolio is allocated to the stock. Other hedgies with similar optimism include Donald Chiboucis’s Columbus Circle Investors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Matt McLennan’s First Eagle Investment Management.

Since AOL, Inc. (NYSE:AOL) has experienced declining interest from the smart money’s best and brightest, it’s easy to see that there is a sect of hedge funds that elected to cut their full holdings last quarter. At the top of the heap, James Dondero’s Highland Capital Management dropped the biggest stake of the 450+ funds we monitor, valued at about $7.6 million in stock. Brett Hendrickson’s fund, Nokomis Capital, also dumped its stock, about $7.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.

What have insiders been doing with AOL, Inc. (NYSE:AOL)?

Insider buying is particularly usable when the primary stock in question has experienced transactions within the past half-year. Over the last half-year time period, AOL, Inc. (NYSE:AOL) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also examine the relationship between both of these indicators in other stocks similar to AOL, Inc. (NYSE:AOL). These stocks are ValueClick Inc (NASDAQ:VCLK), IAC/InterActiveCorp (NASDAQ:IACI), Zynga Inc (NASDAQ:ZNGA), HomeAway, Inc. (NASDAQ:AWAY), and Youku Tudou Inc (ADR) (NYSE:YOKU). This group of stocks are the members of the internet information providers industry and their market caps are similar to AOL’s market cap.

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