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Whole Foods Market, Inc. (WFM), Safeway Inc. (SWY): Is The Kroger Co. (KR) Going to Burn These Hedge Funds?

The Kroger Co. (NYSE:KR) was in 19 hedge funds’ portfolio at the end of the fourth quarter of 2012. KR investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 19 hedge funds in our database with KR positions at the end of the previous quarter.

To most traders, hedge funds are perceived as slow, old investment vehicles of years past. While there are greater than 8000 funds with their doors open today, we at Insider Monkey look at the bigwigs of this club, about 450 funds. It is estimated that this group controls most of all hedge funds’ total asset base, and by paying attention to their best stock picks, we have deciphered a few investment strategies that have historically outpaced the market. 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 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 the details here).

The Kroger Co. (NYSE:KR)Equally as integral, optimistic insider trading sentiment is a second way to parse down the marketplace. As the old adage goes: there are a number of incentives for a bullish insider to get rid of shares of his or her company, but just one, very simple reason why they would initiate a purchase. Many empirical studies have demonstrated the market-beating potential of this strategy if shareholders understand where to look (learn more here).

With all of this in mind, let’s take a look at the key action surrounding The Kroger Co. (NYSE:KR).

How are hedge funds trading The Kroger Co. (NYSE:KR)?

In preparation for this year, a total of 19 of the hedge funds we track held long positions in this stock, a change of 0% from the third quarter. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings substantially.

Of the funds we track, Steven Richman’s East Side Capital (RR Partners) had the largest position in The Kroger Co. (NYSE:KR), worth close to $145 million, comprising 8.2% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $28 million position; 0% of its 13F portfolio is allocated to the company. Other peers that are bullish include Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

Seeing as The Kroger Co. (NYSE:KR) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that decided to sell off their entire stakes heading into 2013. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of the 450+ funds we track, worth close to $21 million in stock.. David Harding’s fund, Winton Capital Management, also cut its stock, about $6 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

What do corporate executives and insiders think about The Kroger Co. (NYSE:KR)?

Bullish insider trading is most useful when the company we’re looking at has seen transactions within the past half-year. Over the latest 180-day time period, The Kroger Co. (NYSE:KR) has experienced zero unique insiders purchasing, and 15 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to The Kroger Co. (NYSE:KR). These stocks are Casey’s General Stores, Inc. (NASDAQ:CASY), Delhaize Group (ADR) (NYSE:DEG), Safeway Inc. (NYSE:SWY), Companhia Brasileira de Distrib. (ADR) (NYSE:CBD), and Whole Foods Market, Inc. (NASDAQ:WFM). This group of stocks are in the grocery stores industry and their market caps are closest to KR’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Casey’s General Stores, Inc. (NASDAQ:CASY) 6 0 4
Delhaize Group (ADR) (NYSE:DEG) 6 0 0
Safeway Inc. (NYSE:SWY) 19 0 2
Companhia Brasileira de Distrib. (ADR) (NYSE:CBD) 9 0 0
Whole Foods Market, Inc. (NASDAQ:WFM) 32 1 14

With the returns demonstrated by our time-tested strategies, retail investors should always monitor hedge fund and insider trading sentiment, and The Kroger Co. (NYSE:KR) shareholders fit into this picture quite nicely.

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