Forest Laboratories, Inc. (NYSE:FRX) shareholders have witnessed a decrease in hedge fund interest of late.
To most investors, hedge funds are assumed to be unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, we at Insider Monkey look at the elite of this club, close to 450 funds. It is widely believed that this group oversees most of the smart money’s total capital, and by tracking their highest performing picks, we have formulated a number of investment strategies that have historically outstripped the broader indices. 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 25 percentage points in 6.5 month (see the details here).
Just as important, bullish insider trading activity is another way to parse down the stock market universe. There are many incentives for an executive to cut shares of his or her company, but only one, very obvious reason why they would behave bullishly. Many empirical studies have demonstrated the useful potential of this tactic if “monkeys” understand what to do (learn more here).
Now, let’s take a look at the recent action encompassing Forest Laboratories, Inc. (NYSE:FRX).
What have hedge funds been doing with Forest Laboratories, Inc. (NYSE:FRX)?
Heading into 2013, a total of 29 of the hedge funds we track were long in this stock, a change of 0% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably.
Of the funds we track, Carl Icahn’s Icahn Capital LP had the biggest position in Forest Laboratories, Inc. (NYSE:FRX), worth close to $1.083 billion, accounting for 8.4% of its total 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $80 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds that are bullish include Sean Cullinan’s Point State Capital, James E. Flynn’s Deerfield Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Since Forest Laboratories, Inc. (NYSE:FRX) has faced a declination in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely heading into 2013. Intriguingly, John Kleinheinz’s Kleinheinz Capital Partners said goodbye to the biggest position of the “upper crust” of funds we key on, totaling about $20 million in stock., and Richard Schimel of Diamondback Capital was right behind this move, as the fund dropped about $12 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
What do corporate executives and insiders think about Forest Laboratories, Inc. (NYSE:FRX)?
Insider buying is most useful when the company in question has experienced transactions within the past half-year. Over the latest half-year time frame, Forest Laboratories, Inc. (NYSE:FRX) has experienced zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).
With the returns exhibited by our research, retail investors must always keep an eye on hedge fund and insider trading activity, and Forest Laboratories, Inc. (NYSE:FRX) 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.