Daruma Capital Management LLC is an employee-owned hedge fund established by its current CEO and CIO, Mariko O. Gordon, in April 1995. The hedge fund has its headquarters in New York City and provides investment management services to pension funds, endowment funds, foundations and other institutions and individuals. Daruma Capital Management focuses primarily on small- and smid-cap stocks, managing a portfolio with no less than 25 and no more than 35 stocks. According to the fund’s latest 13F filing with the SEC, the value of Daruma Capital Management’s public equity portfolio is $2.24 billion. Daruma’s Small-Cap Composite portfolio has generated an annualized return of 12.5% since the foundation of the fund, beating the Russell 2000 benchmark by 3.5 percentage points, while its SMid-Cap Composite portfolio has generated a slightly lower return of 11.7%. Therefore, it’s quite appealing to take a look at Mariko Gordon’s top small-cap picks, which include the following companies: DigitalGlobe Inc. (NYSE:DGI), Electronics for Imaging Inc. (NASDAQ:EFII) and Acxiom Corporation (NASDAQ:ACXM).
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 142% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
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Daruma Capital Management sold roughly 3% of its stake in DigitalGlobe Inc. (NYSE:DGI) during the first quarter, reporting ownership of 2.86 million shares at the end of the quarter with a value of $97.60 million. Even though the stock has decreased by 3% since the beginning of the current year, the company is seeing a lot of opportunities on the horizon. On May 26, DigitalGlobe, which is a leading provider of high-resolution earth observation and sophisticated geospatial solutions, announced the formation of a joint venture, named Vricon, with the defense and security company Saab. The newly-created joint venture will create and develop photo-realistic 3D products and digital elevation models for enterprise and government geospatial markets. Therefore, it’s highly probable that the two companies will be able to unlock new revenue streams in the near future. James Dinan’s York Capital Management is the second-largest investor in DigitalGlobe Inc. (NYSE:DGI) within our database behind Gordon’s fund, holding 2.22 million shares valued at $75.63 million.
Gordon increased her equity stake in Electronics for Imaging Inc. (NASDAQ:EFII) to 2.12 million shares, an increase of 538,849 shares during the quarter, with the stake valued at $88.68 million as of March 31. Despite the fact that the shares of this company have only increased by 1% year-to-date, the stock has been on a long-lasting uptrend for quite some time. It’s been a while since Electronics for Imaging posted its first quarter financial results, however, it seems that the market is still pricing in the better-than-expected performance. The leader in customer-focused digital printing innovation managed to deliver record first quarter revenue of $194.6 million, marking an increase of 3% year-over-year, despite the continuous impact of the strong U.S. dollar. The largest shareholder in Electronics for Imaging Inc. (NASDAQ:EFII) in our database is Eric Bannasch’s Cadian Capital, which owns 2.41 million shares worth $100.63 million.
At the end of the first quarter, Daruma Capital Management held 4.72 million shares of Acxiom Corporation (NASDAQ:ACXM) worth $87.23 million, having sold off 151,227 shares during the first quarter. Acxiom has also struggled in 2015, down by almost 11% since the beginning of the year, but it is evident that the stock has been riding a strong uptrend lately. Only a few days ago, the company announced the re-launch of its Acxiom Impact email and cross-channel marketing platform. This platform is part of the company’s development strategy, therefore, the future performance of Acxiom strongly relies on the newly-released platform. Also, the company has freshly won 11 “Best of Industry” 2015 Internet Advertising Competition Awards and has been named the Outstanding Advertising Developer for the fourth consecutive year, which clearly indicates that the company doesn’t lack innovative minds in its organization that should ensure continued excellence. Ken Griffin’s Citadel Investment Group is among the largest equity holders of Acxiom Corporation (NASDAQ:ACXM), owning 3.01 million shares valued at $55.60 million.
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