To most traders, hedge funds are perceived as unimportant, outdated investment tools of years past. While there are greater than 8000 funds with their doors open at present, we choose to focus on the moguls of this club, around 450 funds. It is widely believed that this group has its hands on the lion’s share of the smart money’s total capital, and by paying attention to their best stock picks, we have unsheathed a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points a year 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 outpaced the S&P 500 index by 24 percentage points in 7 months (see the details here).
Equally as key, optimistic insider trading activity is another way to parse down the investments you’re interested in. There are a number of motivations for a bullish insider to drop shares of his or her company, but just one, very simple reason why they would initiate a purchase. Several academic studies have demonstrated the impressive potential of this strategy if piggybackers understand where to look (learn more here).
Now, we’re going to take a glance at the key action surrounding NewStar Financial Inc (NASDAQ:NEWS).
How have hedgies been trading NewStar Financial Inc (NASDAQ:NEWS)?
At year’s end, a total of 6 of the hedge funds we track were long in this stock, a change of 0% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully.
According to our comprehensive database, Corsair Capital LLC, managed by D.T. Ignacio Jayanti, holds the biggest position in NewStar Financial Inc (NASDAQ:NEWS). Corsair Capital LLC has a $133.2 million position in the stock, comprising 57.6% of its 13F portfolio. The second largest stake is held by Second Curve Capital, managed by Tom Brown, which held a $61.4 million position; 16.6% of its 13F portfolio is allocated to the company. Some other hedgies with similar optimism include Mark Broach’s Manatuck Hill Partners, D. E. Shaw’s D E Shaw and D.T. Ignacio Jayanti’s Corsair Capital LLC.
Since NewStar Financial Inc (NASDAQ:NEWS) has experienced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of funds who sold off their full holdings in Q4. Intriguingly, D.T. Ignacio Jayanti’s Corsair Capital LLC sold off the biggest stake of the 450+ funds we track, comprising close to $0.7 million in call options These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
What have insiders been doing with NewStar Financial Inc (NASDAQ:NEWS)?
Bullish insider trading is best served when the company in focus has experienced transactions within the past 180 days. Over the latest 180-day time period, NewStar Financial Inc (NASDAQ:NEWS) has experienced zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).
Let’s also review hedge fund and insider activity in other stocks similar to NewStar Financial Inc (NASDAQ:NEWS). These stocks are PHH Corporation (NYSE:PHH), World Acceptance Corp. (NASDAQ:WRLD), Global Cash Access Holdings, Inc. (NYSE:GCA), Fifth Street Finance Corp. (NASDAQ:FSC), and DFC Global Corp (NASDAQ:DLLR). This group of stocks are the members of the credit services industry and their market caps match NEWS’s market cap.
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| PHH Corporation (NYSE:PHH) | 28 | 0 | 2 |
| World Acceptance Corp. (NASDAQ:WRLD) | 8 | 0 | 10 |
| Global Cash Access Holdings, Inc. (NYSE:GCA) | 18 | 1 | 6 |
| Fifth Street Finance Corp. (NASDAQ:FSC) | 7 | 4 | 0 |
| DFC Global Corp (NASDAQ:DLLR) | 8 | 0 | 1 |
With the results demonstrated by our studies, everyday investors must always pay attention to hedge fund and insider trading sentiment, and NewStar Financial Inc (NASDAQ:NEWS) is an important part of this process.
