Is Lorillard Inc. (NYSE:LO) Going to Burn These Hedge Funds?

Lorillard Inc. (NYSE:LO) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months.

In the eyes of most traders, hedge funds are viewed as slow, outdated investment tools of years past. While there are more than 8000 funds in operation today, we look at the moguls of this group, around 450 funds. Most estimates calculate that this group controls the lion’s share of the hedge fund industry’s total capital, and by monitoring their best stock picks, we have brought to light a few investment strategies that have historically outperformed the market. 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 started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Equally as key, positive insider trading activity is another way to parse down the marketplace. Just as you’d expect, there are plenty of stimuli for an executive to cut shares of his or her company, but only one, very clear reason why they would initiate a purchase. Many empirical studies have demonstrated the impressive potential of this strategy if piggybackers know what to do (learn more here).

With these “truths” under our belt, we’re going to take a peek at the key action regarding Lorillard Inc. (NYSE:LO).

How are hedge funds trading Lorillard Inc. (NYSE:LO)?

Heading into 2013, a total of 22 of the hedge funds we track held long positions in this stock, a change of -4% from the third quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly.

Of the funds we track, Jean-Marie Eveillard’s First Eagle Investment Management had the most valuable position in Lorillard Inc. (NYSE:LO), worth close to $320 million, accounting for 1.1% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $150 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Jacob Gottlieb’s Visium Asset Management, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management.

Due to the fact that Lorillard Inc. (NYSE:LO) has faced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers who sold off their full holdings at the end of the year. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of all the hedgies we watch, worth about $64 million in stock.. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also said goodbye to its stock, about $2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds at the end of the year.

Insider trading activity in Lorillard Inc. (NYSE:LO)

Bullish insider trading is most useful when the company we’re looking at has experienced transactions within the past half-year. Over the latest 180-day time period, Lorillard Inc. (NYSE:LO) has experienced 1 unique insiders purchasing, and 5 insider sales (see the details of insider trades here).

With the results exhibited by our studies, retail investors must always monitor hedge fund and insider trading activity, and Lorillard Inc. (NYSE:LO) is an important part of this process.

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