Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of DSP Group, Inc. (NASDAQ:DSPG).
Hedge fund interest in DSP Group, Inc. (NASDAQ:DSPG) 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 Park Electrochemical Corp. (NYSE:PKE), Aduro BioTech Inc (NASDAQ:ADRO), and North American Construction Group Ltd. (NYSE:NOA) to gather more data points.
In the eyes of most shareholders, hedge funds are perceived as unimportant, old investment vehicles of the past. While there are over 8000 funds in operation today, Our experts choose to focus on the moguls of this group, approximately 750 funds. Most estimates calculate that this group of people shepherd most of the hedge fund industry's total capital, and by following their matchless equity investments, Insider Monkey has spotted a few investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let's take a gander at the fresh hedge fund action surrounding DSP Group, Inc. (NASDAQ:DSPG).
How have hedgies been trading DSP Group, Inc. (NASDAQ:DSPG)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DSPG over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in DSP Group, Inc. (NASDAQ:DSPG) was held by Raging Capital Management, which reported holding $30.6 million worth of stock at the end of March. It was followed by Rima Senvest Management with a $16.7 million position. Other investors bullish on the company included Renaissance Technologies, Lynrock Lake, and D E Shaw.
Due to the fact that DSP Group, Inc. (NASDAQ:DSPG) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of hedge funds that decided to sell off their entire stakes heading into Q3. Intriguingly, Peter Algert and Kevin Coldiron's Algert Coldiron Investors said goodbye to the biggest investment of the 700 funds monitored by Insider Monkey, valued at about $0.4 million in stock. Josh Goldberg's fund, G2 Investment Partners Management, also said goodbye to its stock, about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as DSP Group, Inc. (NASDAQ:DSPG) but similarly valued. We will take a look at Park Electrochemical Corp. (NYSE:PKE), Aduro BioTech Inc (NASDAQ:ADRO), North American Construction Group Ltd. (NYSE:NOA), and The Rubicon Project Inc (NYSE:RUBI). This group of stocks' market values are similar to DSPG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKE,10,71997,1 ADRO,12,22456,5 NOA,8,51097,0 RUBI,25,61783,3 Average,13.75,51833,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $78 million in DSPG's case. The Rubicon Project Inc (NYSE:RUBI) is the most popular stock in this table. On the other hand North American Construction Group Ltd. (NYSE:NOA) is the least popular one with only 8 bullish hedge fund positions. DSP Group, Inc. (NASDAQ:DSPG) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately DSPG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DSPG investors were disappointed as the stock returned 3.6% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.