Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Digimarc Corp (NASDAQ:DMRC) a marvelous investment now? The best stock pickers are in an optimistic mood. The number of long hedge fund positions inched up by 3 in recent months. Our calculations also showed that DMRC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the key hedge fund action encompassing Digimarc Corp (NASDAQ:DMRC).
How have hedgies been trading Digimarc Corp (NASDAQ:DMRC)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DMRC over the last 16 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Rima Senvest Management held the most valuable stake in Digimarc Corp (NASDAQ:DMRC), which was worth $29.8 million at the end of the second quarter. On the second spot was PEAK6 Capital Management which amassed $9.6 million worth of shares. Moreover, D E Shaw, Citadel Investment Group, and Millennium Management were also bullish on Digimarc Corp (NASDAQ:DMRC), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Millennium Management, managed by Israel Englander, created the largest position in Digimarc Corp (NASDAQ:DMRC). Millennium Management had $4.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.7 million investment in the stock during the quarter. The only other fund with a brand new DMRC position is Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Digimarc Corp (NASDAQ:DMRC) but similarly valued. These stocks are Heidrick & Struggles International, Inc. (NASDAQ:HSII), SurModics, Inc. (NASDAQ:SRDX), Ichor Holdings, Ltd. (NASDAQ:ICHR), and Ultra Clean Holdings Inc (NASDAQ:UCTT). All of these stocks' market caps resemble DMRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HSII,13,104784,-5 SRDX,14,132861,-3 ICHR,8,51672,-2 UCTT,11,60376,2 Average,11.5,87423,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $50 million in DMRC's case. SurModics, Inc. (NASDAQ:SRDX) is the most popular stock in this table. On the other hand Ichor Holdings, Ltd. (NASDAQ:ICHR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Digimarc Corp (NASDAQ:DMRC) is even less popular than ICHR. Hedge funds dodged a bullet by taking a bearish stance towards DMRC. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DMRC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DMRC investors were disappointed as the stock returned -11.9% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.