We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Digimarc Corp (NASDAQ:DMRC).
Hedge fund interest in Digimarc Corp (NASDAQ:DMRC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Digimarc Corp (NASDAQ:DMRC), Arrow Financial Corporation (NASDAQ:AROW), and Spartan Motors Inc (NASDAQ:SPAR) to gather more data points. Our calculations also showed that DMRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are more than 8000 funds with their doors open at present, Our researchers look at the leaders of this group, around 750 funds. It is estimated that this group of investors have their hands on bulk of the smart money’s total asset base, and by keeping an eye on their top stock picks, Insider Monkey has unsheathed numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a gander at the recent hedge fund action regarding Digimarc Corp (NASDAQ:DMRC).
Hedge fund activity in Digimarc Corp (NASDAQ:DMRC)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DMRC over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Rima Senvest Management, managed by Richard Mashaal, holds the largest position in Digimarc Corp (NASDAQ:DMRC). Rima Senvest Management has a $28.6 million position in the stock, comprising 2.5% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by David E. Shaw, holding a $4.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Ken Griffin’s Citadel Investment Group, Matthew Hulsizer’s PEAK6 Capital Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Digimarc Corp (NASDAQ:DMRC), around 2.46% of its 13F portfolio. PEAK6 Capital Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to DMRC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Balyasny Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was AQR Capital Management).
Let’s now review hedge fund activity in other stocks similar to Digimarc Corp (NASDAQ:DMRC). These stocks are Digimarc Corp (NASDAQ:DMRC), Arrow Financial Corporation (NASDAQ:AROW), Spartan Motors Inc (NASDAQ:SPAR), and Financial Institutions, Inc. (NASDAQ:FISI). This group of stocks’ market valuations match DMRC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DMRC | 6 | 38801 | 0 |
| AROW | 5 | 14797 | 2 |
| SPAR | 14 | 61216 | 3 |
| FISI | 10 | 38813 | -1 |
| Average | 8.75 | 38407 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $39 million in DMRC’s case. Spartan Motors Inc (NASDAQ:SPAR) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 5 bullish hedge fund positions. Digimarc Corp (NASDAQ:DMRC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DMRC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DMRC investors were disappointed as the stock returned -17.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
