Open Text Corporation (USA) (OTEX): Insiders Are Dumping, Should You?

Is Open Text Corporation (USA) (NASDAQ:OTEX) going to take off soon? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets were trimmed by 6 lately.

In the eyes of most shareholders, hedge funds are viewed as unimportant, outdated investment vehicles of years past. While there are greater than 8000 funds in operation today, we choose to focus on the elite of this club, close to 450 funds. Most estimates calculate that this group has its hands on the majority of the hedge fund industry’s total asset base, and by paying attention to their top investments, we have come up with a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outperformed 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 trumped the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Equally as key, positive insider trading activity is another way to parse down the world of equities. As the old adage goes: there are plenty of stimuli for an executive to sell shares of his or her company, but only one, very clear reason why they would initiate a purchase. Plenty of empirical studies have demonstrated the valuable potential of this strategy if “monkeys” know where to look (learn more here).

With these “truths” under our belt, let’s take a look at the latest action encompassing Open Text Corporation (USA) (NASDAQ:OTEX).

What have hedge funds been doing with Open Text Corporation (USA) (NASDAQ:OTEX)?

In preparation for this year, a total of 5 of the hedge funds we track were long in this stock, a change of -55% from the third quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully.

When looking at the hedgies we track, Tetrem Capital Management, managed by Daniel Bubis, holds the largest position in Open Text Corporation (USA) (NASDAQ:OTEX). Tetrem Capital Management has a $66.4 million position in the stock, comprising 2% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which held a $4.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.

Due to the fact that Open Text Corporation (USA) (NASDAQ:OTEX) has faced a declination in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely at the end of the year. Intriguingly, D. E. Shaw’s D E Shaw said goodbye to the largest position of the “upper crust” of funds we monitor, comprising an estimated $0.7 million in stock., and Neil Chriss of Hutchin Hill Capital was right behind this move, as the fund sold off about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds at the end of the year.

How have insiders been trading Open Text Corporation (USA) (NASDAQ:OTEX)?

Bullish insider trading is best served when the company we’re looking at has experienced transactions within the past six months. Over the latest half-year time period, Open Text Corporation (USA) (NASDAQ:OTEX) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Open Text Corporation (USA) (NASDAQ:OTEX). These stocks are Splunk Inc (NASDAQ:SPLK), Cadence Design Systems Inc (NASDAQ:CDNS), Fortinet Inc (NASDAQ:FTNT), CommVault Systems, Inc. (NASDAQ:CVLT), and MICROS Systems, Inc. (NASDAQ:MCRS). This group of stocks are in the application software industry and their market caps are similar to OTEX’s market cap.

With the returns shown by the aforementioned strategies, retail investors should always monitor hedge fund and insider trading sentiment, and Open Text Corporation (USA) (NASDAQ:OTEX) applies perfectly to this mantra.

Click here to learn why you should track hedge funds