Hedge Funds Aren’t Crazy About DiaMedica Therapeutics Inc. (DMAC) Anymore

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in DiaMedica Therapeutics Inc. (NASDAQ:DMAC)? The smart money sentiment can provide an answer to this question.

Is DiaMedica Therapeutics Inc. (NASDAQ:DMAC) the right pick for your portfolio? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions fell by 1 recently. DiaMedica Therapeutics Inc. (NASDAQ:DMAC) was in 10 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 12. Our calculations also showed that DMAC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 11 hedge funds in our database with DMAC holdings at the end of March.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing DiaMedica Therapeutics Inc. (NASDAQ:DMAC).

Do Hedge Funds Think DMAC Is A Good Stock To Buy Now?

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DMAC over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Manatuck Hill Partners was the largest shareholder of DiaMedica Therapeutics Inc. (NASDAQ:DMAC), with a stake worth $2.5 million reported as of the end of June. Trailing Manatuck Hill Partners was Stonepine Capital, which amassed a stake valued at $1.9 million. Ikarian Capital, Corriente Advisors, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to DiaMedica Therapeutics Inc. (NASDAQ:DMAC), around 0.98% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, dishing out 0.77 percent of its 13F equity portfolio to DMAC.

Because DiaMedica Therapeutics Inc. (NASDAQ:DMAC) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the largest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $5.1 million in stock, and Warren Lammert’s Granite Point Capital was right behind this move, as the fund dropped about $1.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as DiaMedica Therapeutics Inc. (NASDAQ:DMAC) but similarly valued. We will take a look at Lumos Pharma, Inc. (NASDAQ:LUMO), Kingstone Companies Inc (NASDAQ:KINS), Aridis Pharmaceuticals Inc. (NASDAQ:ARDS), Avalon GloboCare Corp. (NASDAQ:AVCO), QuickLogic Corporation (NASDAQ:QUIK), AMREP Corporation (NYSE:AXR), and Odyssey Marine Exploration Inc (NASDAQ:OMEX). All of these stocks’ market caps match DMAC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $9 million in DMAC’s case. Avalon GloboCare Corp. (NASDAQ:AVCO) is the most popular stock in this table. On the other hand Kingstone Companies Inc (NASDAQ:KINS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks DiaMedica Therapeutics Inc. (NASDAQ:DMAC) is more popular among hedge funds. Our overall hedge fund sentiment score for DMAC is 79. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Unfortunately DMAC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DMAC were disappointed as the stock returned -6.5% since the end of the second quarter (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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