Hedge Funds Aren’t Crazy About Fred’s, Inc. (FRED) Anymore

Fred’s, Inc. (NASDAQ:FRED) was in 4 hedge funds’ portfolio at the end of the fourth quarter of 2012. FRED has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 5 hedge funds in our database with FRED positions at the end of the previous quarter.

Fred's, Inc. (NASDAQ:FRED)

In the eyes of most market participants, hedge funds are viewed as worthless, outdated investment vehicles of the past. While there are over 8000 funds with their doors open at the moment, we choose to focus on the moguls of this group, about 450 funds. Most estimates calculate that this group controls the majority of the smart money’s total asset base, and by paying attention to their best equity investments, we have figured out a number of investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year 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 trumped the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as important, optimistic insider trading activity is another way to parse down the world of equities. Obviously, there are many incentives for an executive to downsize shares of his or her company, but just one, very clear reason why they would buy. Various academic studies have demonstrated the impressive potential of this tactic if you know where to look (learn more here).

With all of this in mind, let’s take a peek at the latest action surrounding Fred’s, Inc. (NASDAQ:FRED).

What does the smart money think about Fred’s, Inc. (NASDAQ:FRED)?

Heading into 2013, a total of 4 of the hedge funds we track held long positions in this stock, a change of -20% from the previous quarter. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially.

Judging by the fact that Fred’s, Inc. (NASDAQ:FRED) has experienced declining sentiment from the smart money, logic holds that there exists a select few money managers who were dropping their full holdings in Q4. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest position of the “upper crust” of funds we watch, worth close to $0.7 million in stock., and Paul Tudor Jones of Tudor Investment Corp was right behind this move, as the fund dropped about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 fund in Q4.

How have insiders been trading Fred’s, Inc. (NASDAQ:FRED)?

Insider buying is at its handiest when the company we’re looking at has experienced transactions within the past six months. Over the last six-month time period, Fred’s, Inc. (NASDAQ:FRED) 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 Fred’s, Inc. (NASDAQ:FRED). These stocks are Alco Stores Inc (NASDAQ:ALCS), Family Dollar Stores, Inc. (NYSE:FDO), PriceSmart, Inc. (NASDAQ:PSMT), Big Lots, Inc. (NYSE:BIG), and Tuesday Morning Corporation (NASDAQ:TUES). This group of stocks are the members of the discount, variety stores industry and their market caps resemble FRED’s market cap.