Is Family Dollar Stores, Inc. (NYSE:FDO) a buy right now? The smart money is taking a pessimistic view. The number of long hedge fund bets fell by 1 in recent months.
If you'd ask most traders, hedge funds are seen as worthless, old investment tools of the past. While there are more than 8000 funds with their doors open at the moment, we hone in on the upper echelon of this group, around 450 funds. It is estimated that this group controls most of the smart money's total asset base, and by watching their best picks, we have discovered a few investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points annually 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 topped the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).
Equally as integral, positive insider trading activity is a second way to parse down the investments you're interested in. Obviously, there are lots of motivations for a bullish insider to downsize shares of his or her company, but just one, very clear reason why they would buy. Various empirical studies have demonstrated the market-beating potential of this tactic if investors know where to look (learn more here).
With these "truths" under our belt, let's take a glance at the recent action regarding Family Dollar Stores, Inc. (NYSE:FDO).
At the end of the fourth quarter, a total of 26 of the hedge funds we track were long in this stock, a change of -4% from the third quarter. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly.
When looking at the hedgies we track, Nelson Peltz's Trian Partners had the most valuable position in Family Dollar Stores, Inc. (NYSE:FDO), worth close to $569 million billion, comprising 24% of its total 13F portfolio. Coming in second is Lee Ainslie of Maverick Capital, with a $268 million position; the fund has 4% of its 13F portfolio invested in the stock. Remaining hedge funds that are bullish include Daniel S. Och's OZ Management, Jonathon Jacobson's Highfields Capital Management and Alan Fournier's Pennant Capital Management.
Since Family Dollar Stores, Inc. (NYSE:FDO) has experienced a declination in interest from the smart money, it's safe to say that there were a few fund managers that slashed their full holdings in Q4. Interestingly, Anand Parekh's Alyeska Investment Group sold off the biggest investment of the "upper crust" of funds we monitor, valued at an estimated $23 million in stock., and SAC Subsidiary of Sigma Capital Management was right behind this move, as the fund dumped about $8 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in Q4.
Insider buying is best served when the primary stock in question has seen transactions within the past half-year. Over the last half-year time period, Family Dollar Stores, Inc. (NYSE:FDO) has seen zero unique insiders buying, and 7 insider sales (see the details of insider trades here).
With the results exhibited by the aforementioned tactics, retail investors should always monitor hedge fund and insider trading sentiment, and Family Dollar Stores, Inc. (NYSE:FDO) applies perfectly to this mantra.
Insider Monkey's small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.