Hedge Funds Are Nibbling On Digimarc Corp (DMRC)
The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Digimarc Corp (NASDAQ:DMRC) based on those filings.
Digimarc Corp (NASDAQ:DMRC) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that DMRC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_30621" align="aligncenter" width="400"]
Cliff Asness of AQR Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the recent hedge fund action encompassing Digimarc Corp (NASDAQ:DMRC).
What does smart money think about Digimarc Corp (NASDAQ:DMRC)?
Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in DMRC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Digimarc Corp (NASDAQ:DMRC) was held by Rima Senvest Management, which reported holding $6.2 million worth of stock at the end of September. It was followed by D E Shaw with a $1.7 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Digimarc Corp (NASDAQ:DMRC), around 0.72% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, setting aside 0.0027 percent of its 13F equity portfolio to DMRC.
As one would reasonably expect, some big names were breaking ground themselves. Renaissance Technologies, created the most outsized position in Digimarc Corp (NASDAQ:DMRC). Renaissance Technologies had $1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.5 million investment in the stock during the quarter. The only other fund with a brand new DMRC position is Cliff Asness's AQR Capital Management.
Let's check out hedge fund activity in other stocks similar to Digimarc Corp (NASDAQ:DMRC). These stocks are Net 1 UEPS Technologies Inc (NASDAQ:UEPS), Modine Manufacturing Company (NYSE:MOD), Saga Communications, Inc. (NYSE:SGA), and Plymouth Industrial REIT, Inc. (NYSE:PLYM). This group of stocks' market valuations resemble DMRC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UEPS,16,48920,1 MOD,16,20428,-1 SGA,3,15949,0 PLYM,9,15292,0 Average,11,25147,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $10 million in DMRC's case. Net 1 UEPS Technologies Inc (NASDAQ:UEPS) is the most popular stock in this table. On the other hand Saga Communications, Inc. (NYSE:SGA) is the least popular one with only 3 bullish hedge fund positions. Digimarc Corp (NASDAQ:DMRC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on DMRC as the stock returned 40.5% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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