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This Metric Says You Are Smart to Sell Alliance Data Systems Corporation (NYSE:ADS)

Alliance Data Systems Corporation (NYSE:ADS) was in 18 hedge funds’ portfolio at the end of December. ADS investors should be aware of a decrease in hedge fund interest recently. There were 18 hedge funds in our database with ADS holdings at the end of the previous quarter.

Alliance Data Systems Corporation (NYSE:ADS)

If you’d ask most shareholders, hedge funds are seen as slow, old investment vehicles of years past. While there are over 8000 funds trading at present, we look at the elite of this group, around 450 funds. It is estimated that this group controls most of the hedge fund industry’s total asset base, and by watching their top equity investments, we have unsheathed a number of investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually 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 outperformed the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).

Just as integral, positive insider trading activity is another way to parse down the stock market universe. Obviously, there are a number of incentives for a bullish insider to downsize shares of his or her company, but only one, very obvious reason why they would behave bullishly. Many academic studies have demonstrated the useful potential of this strategy if “monkeys” know where to look (learn more here).

With all of this in mind, let’s take a look at the latest action surrounding Alliance Data Systems Corporation (NYSE:ADS).

What does the smart money think about Alliance Data Systems Corporation (NYSE:ADS)?

Heading into 2013, a total of 18 of the hedge funds we track were long in this stock, a change of 0% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially.

When looking at the hedgies we track, Ken Griffin’s Citadel Investment Group had the most valuable position in Alliance Data Systems Corporation (NYSE:ADS), worth close to $70 million, comprising 0.1% of its total 13F portfolio. Coming in second is Robert Pohly of Samlyn Capital, with a $44 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Jim Simons’s Renaissance Technologies, Donald Chiboucis’s Columbus Circle Investors and James Dondero’s Highland Capital Management.

Due to the fact that Alliance Data Systems Corporation (NYSE:ADS) has experienced a declination in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds who were dropping their entire stakes heading into 2013. At the top of the heap, Louis Navellier’s Navellier & Associates said goodbye to the largest position of the 450+ funds we track, worth an estimated $84 million in stock.. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading Alliance Data Systems Corporation (NYSE:ADS)?

Bullish insider trading is best served when the company we’re looking at has seen transactions within the past half-year. Over the last six-month time frame, Alliance Data Systems Corporation (NYSE:ADS) has experienced zero unique insiders buying, and 7 insider sales (see the details of insider trades here).

With the results shown by our strategies, everyday investors should always keep an eye on hedge fund and insider trading sentiment, and Alliance Data Systems Corporation (NYSE:ADS) is an important part of this process.

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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