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Hedge Funds Are Selling Herbalife Ltd. (HLF)

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Herbalife Ltd. (NYSE:HLF) was in 30 hedge funds’ portfolio at the end of the first quarter of 2013. HLF has seen a decrease in enthusiasm from smart money in recent months. There were 37 hedge funds in our database with HLF positions at the end of the previous quarter.

To most shareholders, hedge funds are viewed as unimportant, outdated investment vehicles of yesteryear. While there are greater than 8000 funds in operation at present, we at Insider Monkey choose to focus on the aristocrats of this group, around 450 funds. It is estimated that this group has its hands on most of the smart money’s total asset base, and by paying attention to their best picks, we have discovered a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year 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 outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Herbalife Ltd. (NYSE:HLF)Equally as key, bullish insider trading activity is a second way to break down the marketplace. Just as you’d expect, there are plenty of reasons for a corporate insider to get rid of shares of his or her company, but just one, very obvious reason why they would behave bullishly. Several empirical studies have demonstrated the market-beating potential of this tactic if you know what to do (learn more here).

Keeping this in mind, let’s take a peek at the recent action encompassing Herbalife Ltd. (NYSE:HLF).

What have hedge funds been doing with Herbalife Ltd. (NYSE:HLF)?

Heading into Q2, a total of 30 of the hedge funds we track held long positions in this stock, a change of -19% from the previous quarter. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially.

According to our comprehensive database, Carl Icahn’s Icahn Capital LP had the biggest position in Herbalife Ltd. (NYSE:HLF), worth close to $612.5 million, accounting for 3.6% of its total 13F portfolio. On Icahn Capital LP’s heels is Steven Richman of East Side Capital (RR Partners), with a $113.1 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions include Patrick McCormack’s Tiger Consumer Management, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Because Herbalife Ltd. (NYSE:HLF) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedgies who sold off their full holdings in Q1. At the top of the heap, Ken Heebner’s Capital Growth Management sold off the biggest stake of the 450+ funds we monitor, valued at an estimated $110.2 million in stock., and Dan Loeb of Third Point was right behind this move, as the fund dumped about $102.1 million worth. These transactions are interesting, as total hedge fund interest fell by 7 funds in Q1.

Insider trading activity in Herbalife Ltd. (NYSE:HLF)

Insider purchases made by high-level executives is most useful when the company we’re looking at has experienced transactions within the past 180 days. Over the latest half-year time period, Herbalife Ltd. (NYSE:HLF) has experienced 2 unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Herbalife Ltd. (NYSE:HLF). These stocks are USANA Health Sciences, Inc. (NYSE:USNA), Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL), Prestige Brands Holdings, Inc. (NYSE:PBH), and Perrigo Company (NASDAQ:PRGO). This group of stocks are the members of the drug related products industry and their market caps match HLF’s market cap.

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