This Metric Says You Are Smart to Sell HMS Holdings Corp. (HMSY)

Is HMS Holdings Corp. (NASDAQ:HMSY) a great investment now? The smart money is becoming less confident. The number of long hedge fund bets went down by 7 lately.

According to most shareholders, hedge funds are seen as underperforming, old financial vehicles of years past. While there are over 8000 funds with their doors open today, we hone in on the top tier of this club, around 450 funds. It is widely believed that this group has its hands on most of all hedge funds’ total asset base, and by monitoring their highest performing equity investments, we have unearthed a number of investment strategies that have historically beaten the broader indices. 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 (explore the details and some picks here).

Equally as beneficial, bullish insider trading activity is a second way to break down the financial markets. As the old adage goes: there are lots of motivations for an upper level exec to cut shares of his or her company, but just one, very obvious reason why they would behave bullishly. Many empirical studies have demonstrated the valuable potential of this method if “monkeys” understand where to look (learn more here).

Keeping this in mind, it’s important to take a gander at the latest action regarding HMS Holdings Corp. (NASDAQ:HMSY).

Hedge fund activity in HMS Holdings Corp. (NASDAQ:HMSY)

At the end of the fourth quarter, a total of 8 of the hedge funds we track were bullish in this stock, a change of -47% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially.

Of the funds we track, Jim Simons’s Renaissance Technologies had the biggest position in HMS Holdings Corp. (NASDAQ:HMSY), worth close to $9.8 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by SAC Subsidiary of CR Intrinsic Investors, with a $2.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedgies that hold long positions include Steven Cohen’s SAC Capital Advisors, Israel Englander’s Millennium Management and Mark Broach’s Manatuck Hill Partners.

Judging by the fact that HMS Holdings Corp. (NASDAQ:HMSY) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers that elected to cut their positions entirely heading into 2013. Intriguingly, Donald Chiboucis’s Columbus Circle Investors cut the largest stake of the “upper crust” of funds we monitor, worth an estimated $26 million in stock., and Robert Pohly of Samlyn Capital was right behind this move, as the fund sold off about $12.8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 7 funds heading into 2013.

How are insiders trading HMS Holdings Corp. (NASDAQ:HMSY)?

Insider buying is at its handiest when the primary stock in question has seen transactions within the past half-year. Over the latest half-year time period, HMS Holdings Corp. (NASDAQ:HMSY) has seen zero unique insiders purchasing, and 9 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to HMS Holdings Corp. (NASDAQ:HMSY). These stocks are Deluxe Corporation (NYSE:DLX), Portfolio Recovery Associates, Inc. (NASDAQ:PRAA), Lender Processing Services, Inc. (NYSE:LPS), RR Donnelley & Sons Co (NASDAQ:RRD), and Ritchie Bros. Auctioneers (USA) (NYSE:RBA). This group of stocks belong to the business services industry and their market caps are closest to HMSY’s market cap.

With the results shown by our studies, everyday investors should always keep an eye on hedge fund and insider trading sentiment, and HMS Holdings Corp. (NASDAQ:HMSY) is an important part of this process.

Click here to learn why you should track hedge funds