Avoid Digi International Inc. (DGII)?

Digi International Inc. (NASDAQ:DGII) was in 5 hedge funds’ portfolio at the end of the first quarter of 2013. DGII shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 7 hedge funds in our database with DGII holdings at the end of the previous quarter.

In the 21st century investor’s toolkit, there are a multitude of methods investors can use to analyze the equity markets. Some of the most underrated are hedge fund and insider trading activity. At Insider Monkey, our research analyses have shown that, historically, those who follow the best picks of the elite investment managers can outperform their index-focused peers by a superb amount (see just how much).

Equally as integral, positive insider trading sentiment is another way to parse down the stock market universe. As the old adage goes: there are a number of motivations for a bullish insider to get rid of shares of his or her company, but only one, very simple reason why they would initiate a purchase. Many academic studies have demonstrated the valuable potential of this strategy if shareholders know what to do (learn more here).

Consequently, we’re going to take a peek at the recent action surrounding Digi International Inc. (NASDAQ:DGII).

Hedge fund activity in Digi International Inc. (NASDAQ:DGII)

At Q1’s end, a total of 5 of the hedge funds we track were long in this stock, a change of -29% from one quarter earlier. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably.

When looking at the hedgies we track, Royce & Associates, managed by Chuck Royce, holds the biggest position in Digi International Inc. (NASDAQ:DGII). Royce & Associates has a $10.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Two Sigma Advisors, managed by John Overdeck and David Siegel, which held a $1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds that are bullish include Joel Greenblatt’s Gotham Asset Management, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management.

Because Digi International Inc. (NASDAQ:DGII) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who were dropping their full holdings heading into Q2. At the top of the heap, Mike Vranos’s Ellington dumped the largest stake of the 450+ funds we watch, comprising close to $0.1 million in stock., and Cliff Asness of AQR Capital Management was right behind this move, as the fund cut about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q2.

How have insiders been trading Digi International Inc. (NASDAQ:DGII)?

Insider trading activity, especially when it’s bullish, is most useful when the primary stock in question has experienced transactions within the past six months. Over the last half-year time frame, Digi International Inc. (NASDAQ:DGII) has experienced zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Digi International Inc. (NASDAQ:DGII). These stocks are Super Micro Computer, Inc. (NASDAQ:SMCI), Black Box Corporation (NASDAQ:BBOX), Extreme Networks, Inc (NASDAQ:EXTR), Globecomm Systems, Inc. (NASDAQ:GCOM), and Silicom Ltd. (NASDAQ:SILC). This group of stocks belong to the networking & communication devices industry and their market caps match DGII’s market cap.

With the returns exhibited by our research, retail investors must always watch hedge fund and insider trading sentiment, and Digi International Inc. (NASDAQ:DGII) is no exception.

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