Hedge Funds Are Crazy About Nelnet, Inc. (NYSE:NNI) – CapitalSource, Inc. (NYSE:CSE), PHH Corporation (NYSE:PHH)

Nelnet, Inc. (NYSE:NNI) was in 14 hedge funds’ portfolio at the end of the fourth quarter of 2012. NNI shareholders have witnessed an increase in hedge fund interest in recent months. There were 12 hedge funds in our database with NNI holdings at the end of the previous quarter.

Nelnet, Inc. (NYSE:NNI)

If you’d ask most market participants, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, we choose to focus on the leaders of this group, about 450 funds. It is widely believed that this group has its hands on the majority of the smart money’s total capital, and by watching their highest performing equity investments, we have deciphered a number of investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outpaced 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 outpaced the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Equally as important, positive insider trading activity is a second way to parse down the financial markets. As the old adage goes: there are lots of reasons for a bullish insider to sell shares of his or her company, but only one, very clear reason why they would initiate a purchase. Many empirical studies have demonstrated the valuable potential of this method if shareholders understand what to do (learn more here).

Now, let’s take a glance at the key action encompassing Nelnet, Inc. (NYSE:NNI).

What have hedge funds been doing with Nelnet, Inc. (NYSE:NNI)?

Heading into 2013, a total of 14 of the hedge funds we track were long in this stock, a change of 17% from the third quarter. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly.

When looking at the hedgies we track, Amy Minella’s Cardinal Capital had the largest position in Nelnet, Inc. (NYSE:NNI), worth close to $51 million, comprising 3.5% of its total 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $14 million position; 0% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions include Israel Englander’s Millennium Management, Malcolm Fairbairn’s Ascend Capital and Joseph A. Jolson’s Harvest Capital Strategies.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, established the most valuable position in Nelnet, Inc. (NYSE:NNI). Renaissance Technologies had 1 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $1 million investment in the stock during the quarter. The other funds with brand new NNI positions are Mike Vranos’s Ellington and Steven Cohen’s SAC Capital Advisors.

How are insiders trading Nelnet, Inc. (NYSE:NNI)?

Insider trading activity, especially when it’s bullish, is at its handiest when the company in focus has experienced transactions within the past six months. Over the latest half-year time frame, Nelnet, Inc. (NYSE:NNI) has experienced zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Nelnet, Inc. (NYSE:NNI). These stocks are World Acceptance Corp. (NASDAQ:WRLD), CapitalSource, Inc. (NYSE:CSE), PHH Corporation (NYSE:PHH), First Cash Financial Services, Inc. (NASDAQ:FCFS), and Cash America International, Inc. (NYSE:CSH). All of these stocks are in the credit services industry and their market caps resemble NNI’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
World Acceptance Corp. (NASDAQ:WRLD) 8 0 10
CapitalSource, Inc. (NYSE:CSE) 14 0 2
PHH Corporation (NYSE:PHH) 28 0 2
First Cash Financial Services, Inc. (NASDAQ:FCFS) 7 0 4
Cash America International, Inc. (NYSE:CSH) 12 0 4

With the results exhibited by the aforementioned studies, retail investors should always keep an eye on hedge fund and insider trading sentiment, and Nelnet, Inc. (NYSE:NNI) 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 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.