This Metric Says You Are Smart to Sell PetSmart, Inc. (NASDAQ:PETM)

PetSmart, Inc. (NASDAQ:PETM) investors should be aware of a decrease in enthusiasm from smart money lately.

To most traders, hedge funds are seen as unimportant, old financial tools of years past. While there are over 8000 funds trading at present, we at Insider Monkey hone in on the aristocrats of this club, around 450 funds. It is widely believed that this group controls the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their highest performing investments, we have found a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped 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 outpaced the S&P 500 index by 25 percentage points in 6.5 month (see the details here).

PetSmart, Inc.Just as important, optimistic insider trading sentiment is a second way to break down the investments you’re interested in. There are a number of motivations for an executive to drop shares of his or her company, but only one, very obvious reason why they would behave bullishly. Several empirical studies have demonstrated the market-beating potential of this method if you know where to look (learn more here).

Keeping this in mind, we’re going to take a peek at the recent action regarding PetSmart, Inc. (NASDAQ:PETM).

What have hedge funds been doing with PetSmart, Inc. (NASDAQ:PETM)?

At the end of the fourth quarter, a total of 20 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly.

According to our comprehensive database, Longview Asset Management, managed by James A. Star, holds the largest position in PetSmart, Inc. (NASDAQ:PETM). Longview Asset Management has a $410 million position in the stock, comprising 13.9% of its 13F portfolio. On Longview Asset Management’s heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which held a $63 million position; 0.3% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Jim Simons’s Renaissance Technologies, Cliff Asness’s AQR Capital Management and David Harding’s Winton Capital Management.

Since PetSmart, Inc. (NASDAQ:PETM) has experienced bearish sentiment from the smart money, it’s easy to see that there were a few funds that slashed their full holdings at the end of the year. It’s worth mentioning that Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC said goodbye to the biggest stake of all the hedgies we track, worth close to $87 million in stock., and Richard Schimel of Diamondback Capital was right behind this move, as the fund cut about $10 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Insider trading activity in PetSmart, Inc. (NASDAQ:PETM)

Insider purchases made by high-level executives is particularly usable when the primary stock in question has experienced transactions within the past half-year. Over the last 180-day time period, PetSmart, Inc. (NASDAQ:PETM) has experienced zero unique insiders buying, and 12 insider sales (see the details of insider trades here).

With the returns demonstrated by Insider Monkey’s time-tested strategies, everyday investors must always pay attention to hedge fund and insider trading sentiment, and PetSmart, Inc. (NASDAQ:PETM) is no exception.

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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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