The worries about the economic slowdown in China and the ongoing uncertainty about the path of interest-rate increases triggered several waves of equity sell-offs during the third quarter. Of course, most hedge funds and other asset managers had to stomach substantial losses during the bloody three-month period, which might have caused some to consider fleeing the U.S. equity markets. Interestingly, smaller-cap stocks registered higher losses than large-capitalization stocks during the September quarter, suggesting that institutional investors heavily discarded seemingly riskier equities amid high uncertainty and turmoil. In fact, the Russell 2000 Index lost 11.9% in the third quarter, while the Standard and Poor’s 500 benchmark declined a mere 6.4%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Digi International Inc. (NASDAQ:DGII).
Hedge fund interest in Digi International Inc. (NASDAQ:DGII) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DGII to other stocks, including PHI Inc. (NASDAQ:PHIIK), Republic Airways Holdings Inc. (NASDAQ:RJET), and Central European Media Enterprises Ltd. (NASDAQ:CETV) to get a better sense of its popularity.
If you’d ask most traders, hedge funds are viewed as underperforming, old investment vehicles of the past. While there are greater than 8000 funds trading today, Our researchers choose to focus on the aristocrats of this club, approximately 700 funds. These hedge fund managers command bulk of the smart money’s total capital, and by monitoring their unrivaled investments, Insider Monkey has discovered various investment strategies that have historically beaten the market. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Keeping this in mind, we’re going to review the new action regarding Digi International Inc. (NASDAQ:DGII).
How have hedgies been trading Digi International Inc. (NASDAQ:DGII)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the biggest position in Digi International Inc. (NASDAQ:DGII). Royce & Associates has an $9.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding an $1.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw and Peter Muller’s PDT Partners.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Bryn Mawr Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case, because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Digi International Inc. (NASDAQ:DGII) but similarly valued. These stocks are PHI Inc. (NASDAQ:PHIIK), Republic Airways Holdings Inc. (NASDAQ:RJET), Central European Media Enterprises Ltd. (NASDAQ:CETV), and Nanometrics Incorporated (NASDAQ:NANO). This group of stocks’ market valuations are closest to DGII’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $16 million in DGII’s case. Republic Airways Holdings Inc. (NASDAQ:RJET) is the most popular stock in this table. On the other hand Nanometrics Incorporated (NASDAQ:NANO) is the least popular one with only 7 bullish hedge fund positions. Digi International Inc. (NASDAQ:DGII) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RJET might be a better candidate to consider a long position.