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Is Herbalife Ltd. (NYSE:HLF) Going to Burn These Hedge Funds?

Herbalife Ltd. (NYSE:HLF) was in 31 hedge funds’ portfolio at the end of the fourth quarter of 2012. HLF shareholders have witnessed an increase in enthusiasm from smart money lately. There were 23 hedge funds in our database with HLF holdings at the end of the previous quarter.

Herbalife Ltd. (NYSE:HLF)

If you’d ask most stock holders, hedge funds are assumed to be unimportant, outdated investment vehicles of years past. While there are over 8000 funds in operation at present, we look at the aristocrats of this group, around 450 funds. Most estimates calculate that this group oversees the lion’s share of the hedge fund industry’s total asset base, and by keeping an eye on their top investments, we have discovered a few investment strategies that have historically outstripped Mr. 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 began to 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 all of our picks from August).

Just as beneficial, bullish insider trading activity is a second way to break down the financial markets. Obviously, there are lots of motivations for a corporate insider to drop shares of his or her company, but only one, very clear reason why they would buy. Several academic studies have demonstrated the valuable potential of this strategy if piggybackers know what to do (learn more here).

Now, we’re going to take a gander at the latest action regarding Herbalife Ltd. (NYSE:HLF).

Hedge fund activity in Herbalife Ltd. (NYSE:HLF)

At the end of the fourth quarter, a total of 31 of the hedge funds we track were bullish in this stock, a change of 35% from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully.

When looking at the hedgies we track, Capital Growth Management, managed by Ken Heebner, holds the most valuable position in Herbalife Ltd. (NYSE:HLF). Capital Growth Management has a $110 million position in the stock, comprising 2.9% of its 13F portfolio. On Capital Growth Management’s heels is Third Point, managed by Dan Loeb, which held a $102 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other hedgies that are bullish include Steven Richman’s East Side Capital (RR Partners), and Patrick McCormack’s Tiger Consumer Management.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Third Point, managed by Dan Loeb, created the biggest position in Herbalife Ltd. (NYSE:HLF). Third Point had 102 million invested in the company at the end of the quarter. Stephen Mandel’s Lone Pine Capital also made a $77 million investment in the stock during the quarter. The following funds were also among the new HLF investors: D. E. Shaw’s D E Shaw, Kenneth Mario Garschina’s Mason Capital Management, and Philippe Laffont’s Coatue Management.

What do corporate executives and insiders think about Herbalife Ltd. (NYSE:HLF)?

Bullish insider trading is best served when the company we’re looking at has experienced transactions within the past half-year. Over the last half-year time frame, Herbalife Ltd. (NYSE:HLF) has experienced 2 unique insiders buying, and 3 insider sales (see the details of insider trades here).

With the returns demonstrated by Insider Monkey’s time-tested strategies, retail investors should always pay attention to hedge fund and insider trading activity, and Herbalife Ltd. (NYSE:HLF) applies perfectly to this mantra.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

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.

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