Here is What Hedge Funds Think About DSP Group, Inc. (DSPG)

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards DSP Group, Inc. (NASDAQ:DSPG) , and what that likely means for the prospects of the company and its stock.

Is DSP Group, Inc. (NASDAQ:DSPG) worth your attention right now? The smart money is undeniably becoming more confident. The number of long hedge fund positions that are disclosed in regulatory 13F filings strengthened by 4 in recent months. DSPG was in 12 hedge funds’ portfolios at the end of the third quarter of 2016. There were 8 hedge funds in our database with DSPG positions at the end of the previous quarter. At the end of this article we will also compare DSPG to other stocks including Pioneer Energy Services Corp (NYSE:PES), Ignyta Inc (NASDAQ:RXDX), and Safeguard Scientifics, Inc (NYSE:SFE) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Dean Drobot/Shutterstock.com

With all of this in mind, we’re going to take a look at the fresh action encompassing DSP Group, Inc. (NASDAQ:DSPG).

What have hedge funds been doing with DSP Group, Inc. (NASDAQ:DSPG)?

Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in DSPG at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard Mashaal’s Rima Senvest Management has the most valuable position in DSP Group, Inc. (NASDAQ:DSPG), worth close to $25.8 million, comprising 1.9% of its total 13F portfolio. The second largest stake is held by Raging Capital Management, led by William C. Martin, holding a $16.3 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Renaissance Technologies, one of the largest hedge funds in the world, D E Shaw, and Jim Roumell’s Roumell Asset Management. We should note that Raging Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key money managers were leading the bulls’ herd. Israel Englander’s Millennium Management, assembled the biggest position in DSP Group, Inc. (NASDAQ:DSPG). Millennium Management had $0.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s  Arrowstreet Capital  also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new DSPG investors: Ken Griffin’s Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DSP Group, Inc. (NASDAQ:DSPG) but similarly valued. These stocks are Pioneer Energy Services Corp (NYSE:PES), Ignyta Inc (NASDAQ:RXDX), Safeguard Scientifics, Inc (NYSE:SFE), and Kandi Technolgies Corp. (NASDAQ:KNDI). This group of stocks’ market caps match DSPG’s market cap.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $59 million in DSPG’s case. Ignyta Inc (NASDAQ:RXDX) is the most popular stock in this table. On the other hand Kandi Technolgies Corp. (NASDAQ:KNDI) is the least popular one with only 3 bullish hedge fund positions. DSP Group, Inc. (NASDAQ:DSPG) 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 RXDX might be a better candidate to consider taking a long position in.