Hot Topic, Inc. (HOTT): Insiders Aren’t Crazy About It

Hot Topic, Inc. (NASDAQ:HOTT) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months.

If you’d ask most stock holders, hedge funds are perceived as underperforming, old financial vehicles of the past. While there are more than 8000 funds in operation at present, we at Insider Monkey look at the leaders of this club, around 450 funds. Most estimates calculate that this group oversees the majority of the hedge fund industry’s total capital, and by tracking their highest performing stock picks, we have discovered a few investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped 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 topped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Just as beneficial, positive insider trading sentiment is another way to break down the financial markets. There are lots of stimuli for an executive to cut shares of his or her company, but only one, very clear reason why they would buy. Many empirical studies have demonstrated the useful potential of this method if “monkeys” understand what to do (learn more here).

Keeping this in mind, let’s take a look at the latest action surrounding Hot Topic, Inc. (NASDAQ:HOTT).

Hedge fund activity in Hot Topic, Inc. (NASDAQ:HOTT)

Heading into Q2, a total of 18 of the hedge funds we track were bullish in this stock, a change of 20% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes significantly.

When looking at the hedgies we track, Matthew Drapkin and Steven R. Becker’s Becker Drapkin Management had the biggest position in Hot Topic, Inc. (NASDAQ:HOTT), worth close to $49.5 million, accounting for 31.7% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which held a $30.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds with similar optimism include Brett Hendrickson’s Nokomis Capital, Robert Emil Zoellner’s Alpine Associates and Israel Englander’s Millennium Management.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Alpine Associates, managed by Robert Emil Zoellner, established the biggest position in Hot Topic, Inc. (NASDAQ:HOTT). Alpine Associates had 8.6 million invested in the company at the end of the quarter. Paul Glazer’s Glazer Capital also made a $4.5 million investment in the stock during the quarter. The other funds with brand new HOTT positions are Jim Simons’s Renaissance Technologies, Jeffrey Vinik’s Vinik Asset Management, and Jean-Marie Eveillard’s First Eagle Investment Management.

What do corporate executives and insiders think about Hot Topic, Inc. (NASDAQ:HOTT)?

Bullish insider trading is best served when the company in question has experienced transactions within the past half-year. Over the latest six-month time frame, Hot Topic, Inc. (NASDAQ:HOTT) has experienced zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Hot Topic, Inc. (NASDAQ:HOTT). These stocks are Stein Mart, Inc. (NASDAQ:SMRT), Shoe Carnival, Inc. (NASDAQ:SCVL), Stage Stores Inc (NYSE:SSI), Cato Corp (NYSE:CATO), and rue21, inc. (NASDAQ:RUE). This group of stocks are in the apparel stores industry and their market caps are closest to HOTT’s market cap.