Arbitron Inc. (ARB): Hedge Funds Are Bearish and Insiders Are Undecided, What Should You Do?

Arbitron Inc. (NYSE:ARB) investors: listen up.

In the eyes of many traders, hedge funds are viewed as overrated, outdated financial vehicles of a forgotten age. Although there are over 8,000 hedge funds trading currently, Insider Monkey looks at the aristocrats of this club, about 525 funds. It is widely held that this group controls the majority of the smart money’s total capital, and by paying attention to their highest quality equity investments, we’ve come up with a number of investment strategies that have historically outpaced the S&P 500. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually 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 33 percentage points in 11 months (see all of our picks from August).

Equally as crucial, optimistic insider trading sentiment is another way to look at the marketplace. Just as you’d expect, there are many reasons for an insider to downsize shares of his or her company, but just one, very simple reason why they would buy. Plenty of academic studies have demonstrated the impressive potential of this method if piggybackers understand what to do (learn more here).

Now that that’s out of the way, it’s important to discuss the newest info about Arbitron Inc. (NYSE:ARB).

What have hedge funds been doing with Arbitron Inc. (NYSE:ARB)?

Heading into Q3, a total of 24 of the hedge funds we track held long positions in this stock, a change of -4% from the first quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully.

When using filings from the hedgies we track, Cliff Asness’s AQR Capital Management had the largest position in Arbitron Inc. (NYSE:ARB), worth close to $62 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Highbridge Capital Management, managed by Glenn Russell Dubin, which held a $44.1 million position; 0.4% of its 13F portfolio is allocated to the company. Other hedgies that are bullish include Jim Simons’s Renaissance Technologies, Robert Emil Zoellner’s Alpine Associates and Brian Taylor’s Pine River Capital Management.

Since Arbitron Inc. (NYSE:ARB) has faced dropping sentiment from the smart money’s best and brightest, we can see that there lies a certain “tier” of hedgies that decided to sell off their full holdings heading into Q2. At the top of the heap, John Bader’s Halcyon Asset Management sold off the largest investment of all the hedgies we track, valued at an estimated $54.5 million in stock. Shane Finemore’s fund, Manikay Partners, also dumped its stock, about $17.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q2.

What have insiders been doing with Arbitron Inc. (NYSE:ARB)?

Insider buying is best served when the primary stock in question has seen transactions within the past half-year. Over the last half-year time frame, Arbitron Inc. (NYSE:ARB) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to Arbitron Inc. (NYSE:ARB). These stocks are Millennial Media, Inc. (NYSE:MM), MDC Partners Inc. (USA) (NASDAQ:MDCA), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), National CineMedia, Inc. (NASDAQ:NCMI), and Valassis Communications, Inc. (NYSE:VCI). This group of stocks are the members of the marketing services industry and their market caps are closest to ARB’s market cap.

Using the results demonstrated by the previously mentioned strategies, regular investors must always watch hedge fund and insider trading sentiment, and Arbitron Inc. (NYSE:ARB) is an important part of this process.

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