Is Keynote Systems, Inc. (KEYN) Going to Burn These Hedge Funds?

Is Keynote Systems, Inc. (NASDAQ:KEYN) undervalued? Prominent investors are selling. The number of bullish hedge fund bets went down by 2 in recent months.

According to most shareholders, hedge funds are assumed to be worthless, old financial vehicles of yesteryear. While there are greater than 8000 funds trading at present, we hone in on the moguls of this group, around 450 funds. It is widely believed that this group oversees most of the hedge fund industry’s total asset base, and by keeping an eye on their highest performing investments, we have unearthed a number of investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually 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 outperformed the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Equally as key, positive insider trading activity is a second way to parse down the investments you’re interested in. Obviously, there are lots of incentives for an insider to downsize shares of his or her company, but just one, very obvious reason why they would buy. Several academic studies have demonstrated the useful potential of this method if shareholders know what to do (learn more here).

Keeping this in mind, we’re going to take a peek at the key action surrounding Keynote Systems, Inc. (NASDAQ:KEYN).

How are hedge funds trading Keynote Systems, Inc. (NASDAQ:KEYN)?

In preparation for this quarter, a total of 7 of the hedge funds we track were long in this stock, a change of -22% from the first quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully.

Of the funds we track, Empire Capital Management, managed by Scott Fine and Peter Richards, holds the most valuable position in Keynote Systems, Inc. (NASDAQ:KEYN). Empire Capital Management has a $35.6 million position in the stock, comprising 3.4% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which held a $8.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds that are bullish include Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw.

Because Keynote Systems, Inc. (NASDAQ:KEYN) has experienced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers who sold off their full holdings heading into Q2. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital cut the biggest investment of the 450+ funds we key on, worth close to $3.3 million in stock.. Philip Hempleman’s fund, Ardsley Partners, also said goodbye to its stock, about $2.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q2.

How are insiders trading Keynote Systems, Inc. (NASDAQ:KEYN)?

Insider buying is best served when the company we’re looking at has seen transactions within the past half-year. Over the last six-month time period, Keynote Systems, Inc. (NASDAQ:KEYN) has seen zero unique insiders buying, and 4 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 Keynote Systems, Inc. (NASDAQ:KEYN). These stocks are ModusLink Global Solutions, Inc. (NASDAQ:MLNK), Support.com, Inc. (NASDAQ:SPRT), Vocus, Inc. (NASDAQ:VOCS), QuinStreet Inc (NASDAQ:QNST), and ClickSoftware Technologies Ltd. (NASDAQ:CKSW). This group of stocks belong to the internet software & services industry and their market caps are similar to KEYN’s market cap.

With the returns demonstrated by the aforementioned time-tested strategies, retail investors must always pay attention to hedge fund and insider trading sentiment, and Keynote Systems, Inc. (NASDAQ:KEYN) is an important part of this process.

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