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Waddell & Reed Financial, Inc. (WDR): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is Waddell & Reed Financial, Inc. (NYSE:WDR) ready to rally soon? Prominent investors are taking an optimistic view. The number of bullish hedge fund bets increased by 3 recently.

If you’d ask most market participants, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are more than 8000 funds in operation today, we at Insider Monkey look at the crème de la crème of this club, close to 450 funds. Most estimates calculate that this group controls the majority of all hedge funds’ total capital, and by keeping an eye on their highest performing investments, we have formulated a number of investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points a 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 beaten the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Waddell & Reed Financial, Inc. (NYSE:WDR)Just as key, optimistic insider trading activity is a second way to break down the stock market universe. Just as you’d expect, there are plenty of incentives for an executive to downsize shares of his or her company, but just one, very obvious reason why they would buy. Several empirical studies have demonstrated the impressive potential of this tactic if piggybackers know where to look (learn more here).

With all of this in mind, we’re going to take a glance at the key action encompassing Waddell & Reed Financial, Inc. (NYSE:WDR).

Hedge fund activity in Waddell & Reed Financial, Inc. (NYSE:WDR)

At the end of the first quarter, a total of 13 of the hedge funds we track held long positions in this stock, a change of 30% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially.

As aggregate interest increased, some big names were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the largest call position in Waddell & Reed Financial, Inc. (NYSE:WDR). PEAK6 Capital Management had 1.7 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.3 million position during the quarter. The following funds were also among the new WDR investors: Steven Cohen’s SAC Capital Advisors, D. E. Shaw’s D E Shaw, and Matthew Hulsizer’s PEAK6 Capital Management.

What do corporate executives and insiders think about Waddell & Reed Financial, Inc. (NYSE:WDR)?

Insider trading activity, especially when it’s bullish, is particularly usable when the primary stock in question has seen 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 8 insider sales (see the details of insider trades here).

Let’s also review 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 resemble WDR’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
American Capital Ltd. (NASDAQ:ACAS) 24 0 10
Lazard Ltd (NYSE:LAZ) 19 0 3
Legg Mason, Inc. (NYSE:LM) 18 0 1
Och-Ziff Capital Management Group LLC (NYSE:OZM) 13 0 1
KKR & Co. L.P. (NYSE:KKR) 23 0 2

With the returns shown by the aforementioned time-tested strategies, everyday investors should always watch hedge fund and insider trading activity, and Waddell & Reed Financial, Inc. (NYSE:WDR) is an important part of this process.

Click here to learn why you should track hedge funds

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