This Metric Says You Are Smart to Sell Urban Outfitters, Inc. (URBN)

Urban Outfitters, Inc. (NASDAQ:URBN) investors should pay attention to a decrease in hedge fund sentiment lately.

According to most stock holders, hedge funds are viewed as worthless, outdated investment tools of yesteryear. While there are greater than 8000 funds with their doors open today, we hone in on the crème de la crème of this club, close to 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 monitoring their highest performing stock picks, we have spotted a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a 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 outclassed the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Equally as beneficial, bullish insider trading activity is a second way to parse down the world of equities. Obviously, there are many stimuli for an insider to sell shares of his or her company, but just one, very simple reason why they would behave bullishly. Various empirical studies have demonstrated the impressive potential of this tactic if investors understand what to do (learn more here).

With all of this in mind, we’re going to take a glance at the recent action encompassing Urban Outfitters, Inc. (NASDAQ:URBN).

How have hedgies been trading Urban Outfitters, Inc. (NASDAQ:URBN)?

At the end of the first quarter, a total of 26 of the hedge funds we track held long positions in this stock, a change of 0% from the previous quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly.

According to our comprehensive database, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Urban Outfitters, Inc. (NASDAQ:URBN). Citadel Investment Group has a $118.3 million position in the stock, comprising 0.2% of its 13F portfolio. On Citadel Investment Group’s heels is Phill Gross and Robert Atchinson of Adage Capital Management, with a $118.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedgies that hold long positions include Steven Cohen’s SAC Capital Advisors, Donald Chiboucis’s Columbus Circle Investors and Patrick McCormack’s Tiger Consumer Management.

Judging by the fact that Urban Outfitters, Inc. (NASDAQ:URBN) has faced declining sentiment from the smart money, it’s safe to say that there exists a select few fund managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that Charles Anderson’s Fox Point Capital Management said goodbye to the largest position of all the hedgies we watch, valued at close to $9.8 million in stock., and Alexander Mitchell of Scopus Asset Management was right behind this move, as the fund dumped about $9.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading Urban Outfitters, Inc. (NASDAQ:URBN)?

Bullish insider trading is at its handiest when the company in question has seen transactions within the past six months. Over the latest half-year time frame, Urban Outfitters, Inc. (NASDAQ:URBN) has seen zero unique insiders buying, and 5 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Urban Outfitters, Inc. (NASDAQ:URBN). These stocks are Ascena Retail Group Inc (NASDAQ:ASNA), Nordstrom, Inc. (NYSE:JWN), American Eagle Outfitters (NYSE:AEO), Abercrombie & Fitch Co. (NYSE:ANF), and Foot Locker, Inc. (NYSE:FL). This group of stocks belong to the apparel stores industry and their market caps are closest to URBN’s market cap.

With the results exhibited by the aforementioned time-tested strategies, retail investors must always watch hedge fund and insider trading activity, and Urban Outfitters, Inc. (NASDAQ:URBN) applies perfectly to this mantra.

Click here to learn why you should track hedge funds