This Metric Says You Are Smart to Sell Derma Sciences Inc (DSCI)

Derma Sciences Inc (NASDAQ:DSCI) was in 7 hedge funds’ portfolio at the end of the first quarter of 2013. DSCI has seen a decrease in enthusiasm from smart money lately. There were 8 hedge funds in our database with DSCI holdings at the end of the previous quarter.

In the eyes of most traders, hedge funds are seen as underperforming, old investment tools of the past. While there are greater than 8000 funds trading at present, we at Insider Monkey look at the moguls of this club, close to 450 funds. Most estimates calculate that this group controls the majority of the hedge fund industry’s total asset base, and by monitoring their highest performing investments, we have determined a few investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as important, bullish insider trading activity is another way to break down the financial markets. Just as you’d expect, there are a variety of motivations for a corporate insider to cut shares of his or her company, but just one, very obvious reason why they would buy. Many empirical studies have demonstrated the market-beating potential of this tactic if shareholders understand what to do (learn more here).

With all of this in mind, it’s important to take a gander at the latest action surrounding Derma Sciences Inc (NASDAQ:DSCI).

Hedge fund activity in Derma Sciences Inc (NASDAQ:DSCI)

Heading into Q2, a total of 7 of the hedge funds we track were bullish in this stock, a change of -13% from the first quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially.

Of the funds we track, Peter Kolchinsky’s RA Capital Management had the biggest position in Derma Sciences Inc (NASDAQ:DSCI), worth close to $19 million, comprising 4.1% of its total 13F portfolio. The second largest stake is held by Julian Baker and Felix Baker of Baker Bros. Advisors, with a $16.4 million position; 0.3% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Joel Ramin’s 12 West Capital Management, Stephen DuBois’s Camber Capital Management and Kevin Kotler’s Broadfin Capital.

Since Derma Sciences Inc (NASDAQ:DSCI) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds who were dropping their entire stakes at the end of the first quarter. Intriguingly, Cliff Asness’s AQR Capital Management dumped the biggest investment of the “upper crust” of funds we key on, worth an estimated $0.2 million in stock. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds at the end of the first quarter.

What have insiders been doing with Derma Sciences Inc (NASDAQ:DSCI)?

Insider buying is particularly usable when the company we’re looking at has experienced transactions within the past six months. Over the last 180-day time frame, Derma Sciences Inc (NASDAQ:DSCI) has experienced 1 unique insiders purchasing, and 2 insider sales (see the details of insider trades here).

With the results exhibited by Insider Monkey’s research, retail investors should always watch hedge fund and insider trading activity, and Derma Sciences Inc (NASDAQ:DSCI) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds