Hedge Funds Are Dumping Hot Topic, Inc. (HOTT): Stein Mart, Inc. (SMRT), Shoe Carnival, Inc. (SCVL)

Is Hot Topic, Inc. (NASDAQ:HOTT) the right pick for your portfolio? Money managers are becoming less confident. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

Clint Carlson

In the eyes of most investors, hedge funds are assumed to be slow, old investment vehicles of the past. While there are greater than 8000 funds with their doors open today, we at Insider Monkey choose to focus on the leaders of this group, about 450 funds. It is widely believed that this group oversees most of the smart money’s total asset base, and by tracking their top equity investments, we have come up with a few investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per 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 (explore the details and some picks here).

Just as integral, positive insider trading activity is a second way to parse down the financial markets. There are plenty of incentives for a corporate insider to sell shares of his or her company, but just one, very simple reason why they would initiate a purchase. Many empirical studies have demonstrated the valuable potential of this tactic if piggybackers know where to look (learn more here).

Now, it’s important to take a glance at the key action regarding Hot Topic, Inc. (NASDAQ:HOTT).

What have hedge funds been doing with Hot Topic, Inc. (NASDAQ:HOTT)?

Heading into 2013, a total of 12 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 select group of notable hedge fund managers who were upping their stakes considerably.

Of the funds we track, Clint Carlson’s Carlson Capital had the biggest position in Hot Topic, Inc. (NASDAQ:HOTT), worth close to $22 million, accounting for 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Nokomis Capital, managed by Brett Hendrickson, which held a $7 million position; 2.3% of its 13F portfolio is allocated to the company. Some other hedgies with similar optimism include Cliff Asness’s AQR Capital Management, Chuck Royce’s Royce & Associates and Paul Tudor Jones’s Tudor Investment Corp.

Since Hot Topic, Inc. (NASDAQ:HOTT) has witnessed a declination in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their positions entirely at the end of the year. It’s worth mentioning that Jim Simons’s Renaissance Technologies dumped the biggest position of the “upper crust” of funds we key on, valued at close to $2 million in stock., and Mike Vranos of Ellington was right behind this move, as the fund dumped about $1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading Hot Topic, Inc. (NASDAQ:HOTT)?

Insider purchases made by high-level executives is best served when the primary stock in question has seen transactions within the past half-year. Over the last half-year time period, Hot Topic, Inc. (NASDAQ:HOTT) has experienced zero unique insiders purchasing, 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 Hot Topic, Inc. (NASDAQ:HOTT). These stocks are Stein Mart, Inc. (NASDAQ:SMRT), Shoe Carnival, Inc. (NASDAQ:SCVL), Stage Stores Inc (NYSE:SSI), Cato Corp (NYSE:CATO), and rue21, inc. (NASDAQ:RUE). All of these stocks are in the apparel stores industry and their market caps are similar to HOTT’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Stein Mart, Inc. (NASDAQ:SMRT) 5 0 0
Shoe Carnival, Inc. (NASDAQ:SCVL) 4 0 1
Stage Stores Inc (NYSE:SSI) 15 0 3
Cato Corp (NYSE:CATO) 5 1 1
rue21, inc. (NASDAQ:RUE) 5 0 5

With the returns demonstrated by the aforementioned tactics, retail investors should always pay attention to hedge fund and insider trading sentiment, and Hot Topic, Inc. (NASDAQ:HOTT) 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.