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This Metric Says You Are Smart to Sell Waddell & Reed Financial, Inc. (WDR): American Capital Ltd. (ACAS), Lazard Ltd (LAZ)

Waddell & Reed Financial, Inc. (NYSE:WDR) has experienced a decrease in support from the world’s most elite money managers in recent months.

Waddell & Reed Financial, Inc. (NYSE:WDR)

In the eyes of most market participants, hedge funds are assumed to be worthless, old investment tools of years past. While there are more than 8000 funds with their doors open today, we at Insider Monkey look at the leaders of this club, about 450 funds. Most estimates calculate that this group controls most of the smart money’s total asset base, and by monitoring their top picks, we have unsheathed a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outperformed 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 outperformed the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as integral, bullish insider trading sentiment is another way to break down the marketplace. Obviously, there are many motivations for a bullish insider to cut shares of his or her company, but just one, very simple reason why they would buy. Plenty of empirical studies have demonstrated the valuable potential of this strategy if investors know where to look (learn more here).

Consequently, it’s important to take a gander at the key action regarding Waddell & Reed Financial, Inc. (NYSE:WDR).

How have hedgies been trading Waddell & Reed Financial, Inc. (NYSE:WDR)?

At the end of the fourth quarter, a total of 10 of the hedge funds we track were bullish in this stock, a change of -9% from the third quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Waddell & Reed Financial, Inc. (NYSE:WDR). Fisher Asset Management has a $78 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which held a $62 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions include David Dreman’s Dreman Value Management, Mario Gabelli’s GAMCO Investors and Joel Greenblatt’s Gotham Asset Management.

Judging by the fact that Waddell & Reed Financial, Inc. (NYSE:WDR) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers that elected to cut their full holdings in Q4. At the top of the heap, Jim Simons’s Renaissance Technologies dumped the biggest investment of the 450+ funds we track, worth about $5 million in stock.. Richard Schimel’s fund, Diamondback Capital, also cut its stock, about $3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in Q4.

What have insiders been doing with Waddell & Reed Financial, Inc. (NYSE:WDR)?

Bullish insider trading is particularly usable when the primary stock in question has experienced transactions within the past six months. Over the last half-year time period, Waddell & Reed Financial, Inc. (NYSE:WDR) has seen zero unique insiders buying, and 7 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 Waddell & Reed Financial, Inc. (NYSE:WDR). These stocks are American Capital Ltd. (NASDAQ:ACAS), Lazard Ltd (NYSE:LAZ), Legg Mason, Inc. (NYSE:LM), Och-Ziff Capital Management Group LLC (NYSE:OZM), and KKR & Co. L.P. (NYSE:KKR). This group of stocks are in the asset management industry and their market caps are closest to WDR’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
American Capital Ltd. (NASDAQ:ACAS) 21 0 9
Lazard Ltd (NYSE:LAZ) 14 0 2
Legg Mason, Inc. (NYSE:LM) 20 1 0
Och-Ziff Capital Management Group LLC (NYSE:OZM) 11 0 1
KKR & Co. L.P. (NYSE:KKR) 19 0 2

With the results exhibited by our research, everyday investors should always monitor hedge fund and insider trading sentiment, and Waddell & Reed Financial, Inc. (NYSE:WDR) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds

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