Hedge Funds Are Dumping The Gap Inc. (GPS)

The Gap Inc. (NYSE:GPS) was in 26 hedge funds’ portfolio at the end of March. GPS has seen a decrease in support from the world’s most elite money managers in recent months. There were 31 hedge funds in our database with GPS positions at the end of the previous quarter.

To the average investor, there are a multitude of methods market participants can use to monitor publicly traded companies. Two of the most useful are hedge fund and insider trading activity. At Insider Monkey, our research analyses have shown that, historically, those who follow the top picks of the top fund managers can outperform the broader indices by a solid margin (see just how much).

Just as integral, optimistic insider trading activity is another way to break down the investments you’re interested in. There are a variety of incentives for a corporate insider to get rid of shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several empirical studies have demonstrated the valuable potential of this strategy if piggybackers know what to do (learn more here).

With all of this in mind, it’s important to take a glance at the recent action regarding The Gap Inc. (NYSE:GPS).

How have hedgies been trading The Gap Inc. (NYSE:GPS)?

Heading into Q2, a total of 26 of the hedge funds we track were long in this stock, a change of -16% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably.

Of the funds we track, Stephen Mandel’s Lone Pine Capital had the most valuable position in The Gap Inc. (NYSE:GPS), worth close to $713.5 million, comprising 3.7% of its total 13F portfolio. The second largest stake is held by Edward Lampert of ESL Investments, with a $492.7 million position; the fund has 12.2% of its 13F portfolio invested in the stock. Some other hedgies that are bullish include John Griffin’s Blue Ridge Capital, Steven Cohen’s SAC Capital Advisors and Cliff Asness’s AQR Capital Management.

Seeing as The Gap Inc. (NYSE:GPS) has faced declining sentiment from the smart money, logic holds that there is a sect of fund managers that elected to cut their full holdings last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the 450+ funds we monitor, valued at close to $10.7 million in stock., and Steven Cohen of SAC Capital Advisors was right behind this move, as the fund dumped about $9.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.

How are insiders trading The Gap Inc. (NYSE:GPS)?

Insider trading activity, especially when it’s bullish, is best served when the company in question has experienced transactions within the past half-year. Over the last 180-day time frame, The Gap Inc. (NYSE:GPS) has seen zero unique insiders buying, and 7 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to The Gap Inc. (NYSE:GPS). These stocks are Urban Outfitters, Inc. (NASDAQ:URBN), Nordstrom, Inc. (NYSE:JWN), Michael Kors Holdings Ltd (NYSE:KORS), Limited Brands, Inc. (NYSE:LTD), and Ross Stores, Inc. (NASDAQ:ROST). This group of stocks belong to the apparel stores industry and their market caps are similar to GPS’s market cap.

With the results exhibited by our time-tested strategies, retail investors should always pay attention to hedge fund and insider trading activity, and The Gap Inc. (NYSE:GPS) applies perfectly to this mantra.

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