Is DTS Inc. (DTSI) Going to Burn These Hedge Funds?

The third-quarter stock market correction has turned out to resemble the situation observed during the Asian financial crisis of 1997. The two relatively short-lived corrections occurred at a time with stable interest rates, falling commodity markets, with strong-performing technology and healthcare sectors, and struggling energy sector. Similarly, the two corrections followed long periods without a correction, which had to come sooner or later and it did. Even so, several prominent hedge fund investors publicly asserted their bearish view on the current state of the U.S. equity markets, suggesting that they significantly cut their exposure to equities during the latest quarter. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on DTS Inc. (NASDAQ:DTSI) in order to identify whether reputable and successful top money managers continue to believe in its potential.

DTS Inc. was in 12 hedge funds’ portfolios at the end of September. DTSI shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 13 hedge funds in our database with DTSI holdings at the end of the previous quarter. At the end of this article we will also compare DTSI to other stocks including Gores Holdings Inc (NASDAQ:GRSH), First PacTrust Bancorp, Inc. (NASDAQ:BANC), and Rentech Nitrogen Partners LP (NYSE:RNF) to get a better sense of its popularity.

At the moment there are numerous formulas stock market investors have at their disposal to size up their holdings. A pair of the most useful formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outpace their index-focused peers by a significant margin (see the details here).

With all of this in mind, let’s analyze the recent action encompassing DTS Inc. (NASDAQ:DTSI).

How have hedgies been trading DTS Inc. (NASDAQ:DTSI)?

Heading into Q4, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 8% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in DTS Inc. (NASDAQ:DTSI), worth close to $38.5 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Douglas T. Granat’s Trigran Investments, with a $34.9 million position; the fund has 10.9% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Jim Simons’ Renaissance Technologies, Robert B. Gillam’s McKinley Capital Management, and Ken Fisher’s Fisher Asset Management.

Due to the fact that DTS Inc. (NASDAQ:DTSI) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds that decided to sell off their positions entirely heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $2.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to DTS Inc. (NASDAQ:DTSI). We will take a look at Gores Holdings Inc (NASDAQ:GRSH), First PacTrust Bancorp, Inc. (NASDAQ:BANC), Rentech Nitrogen Partners LP (NYSE:RNF), and Opower Inc (NYSE:OPWR). All of these stocks’ market caps are closest to DTSI’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $95 million in DTSI’s case. First PacTrust Bancorp, Inc. (NASDAQ:BANC) is the most popular stock in this table. On the other hand Rentech Nitrogen Partners LP (NYSE:RNF) is the least popular one with only 5 bullish hedge fund positions. DTS Inc. (NASDAQ:DTSI) 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. In this regard BANC might be a better candidate to consider a long position.