Is West Marine, Inc. (WMAR) Going to Burn These Hedge Funds?

West Marine, Inc. (NASDAQ:WMAR) has experienced an increase in activity from the world’s largest hedge funds of late.

If you’d ask most investors, hedge funds are viewed as underperforming, old financial tools of yesteryear. While there are over 8000 funds trading at present, we hone in on the moguls of this club, around 450 funds. Most estimates calculate that this group controls most of the hedge fund industry’s total capital, and by watching their highest performing picks, we have deciphered a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per 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 24 percentage points in 7 months (explore the details and some picks here).

Just as key, bullish insider trading sentiment is another way to parse down the investments you’re interested in. As the old adage goes: there are lots of incentives for an executive to get rid of shares of his or her company, but just one, very simple reason why they would behave bullishly. Various empirical studies have demonstrated the market-beating potential of this method if shareholders understand where to look (learn more here).

Consequently, it’s important to take a glance at the latest action regarding West Marine, Inc. (NASDAQ:WMAR).

What have hedge funds been doing with West Marine, Inc. (NASDAQ:WMAR)?

Heading into 2013, a total of 7 of the hedge funds we track were bullish in this stock, a change of 40% from the previous quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully.

When looking at the hedgies we track, Robert Joseph Caruso’s Select Equity Group had the most valuable position in West Marine, Inc. (NASDAQ:WMAR), worth close to $16.5 million, accounting for 0.3% of its total 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which held a $14.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedgies that are bullish include Roger Keith Long’s Otter Creek Management, Jim Simons’s Renaissance Technologies and Israel Englander’s Millennium Management.

Now, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the largest position in West Marine, Inc. (NASDAQ:WMAR). Two Sigma Advisors had 0.2 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $0.1 million investment in the stock during the quarter.

What do corporate executives and insiders think about West Marine, Inc. (NASDAQ:WMAR)?

Insider trading activity, especially when it’s bullish, is at its handiest when the company we’re looking at has experienced transactions within the past 180 days. Over the latest six-month time period, West Marine, Inc. (NASDAQ:WMAR) has experienced zero unique insiders buying, and 4 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to West Marine, Inc. (NASDAQ:WMAR). These stocks are Winmark Corporation (NASDAQ:WINA), CSS Industries, Inc. (NYSE:CSS), Odyssey Marine Exploration Inc (NASDAQ:OMEX), TravelCenters of America LLC (NYSEAMEX:TA), and XO Group Inc (NYSE:XOXO). This group of stocks belong to the specialty retail, other industry and their market caps resemble WMAR’s market cap.

With the results exhibited by Insider Monkey’s studies, retail investors should always monitor hedge fund and insider trading sentiment, and West Marine, Inc. (NASDAQ:WMAR) applies perfectly to this mantra.

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