InterDigital, Inc. (IDCC): Hedge Funds In Wait-and-See Mode

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded InterDigital, Inc. (NASDAQ:IDCC) and determine whether the smart money was really smart about this stock.

Hedge fund interest in InterDigital, Inc. (NASDAQ:IDCC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that IDCC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare IDCC to other stocks including Easterly Government Properties Inc (NYSE:DEA), Progress Software Corporation (NASDAQ:PRGS), and FS KKR Capital Corp. (NASDAQ:FSK) to get a better sense of its popularity.

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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers after its stock price crashed. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the fresh hedge fund action surrounding InterDigital, Inc. (NASDAQ:IDCC).

What have hedge funds been doing with InterDigital, Inc. (NASDAQ:IDCC)?

At second quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in IDCC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in InterDigital, Inc. (NASDAQ:IDCC) was held by Renaissance Technologies, which reported holding $86.7 million worth of stock at the end of September. It was followed by Shannon River Fund Management with a $74.4 million position. Other investors bullish on the company included D E Shaw, Toronado Partners, and Rubric Capital Management. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to InterDigital, Inc. (NASDAQ:IDCC), around 9.74% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, designating 9.32 percent of its 13F equity portfolio to IDCC.

Due to the fact that InterDigital, Inc. (NASDAQ:IDCC) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds that slashed their positions entirely heading into Q3. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $6.5 million in stock, and Ali Motamed’s Invenomic Capital Management was right behind this move, as the fund cut about $3.8 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as InterDigital, Inc. (NASDAQ:IDCC) but similarly valued. These stocks are Easterly Government Properties Inc (NYSE:DEA), Progress Software Corporation (NASDAQ:PRGS), FS KKR Capital Corp. (NYSE:FSK), I-Mab (NASDAQ:IMAB), Zentalis Pharmaceuticals, Inc. (NASDAQ:ZNTL), Rambus Inc. (NASDAQ:RMBS), and Liberty Latin America Ltd. (NASDAQ:LILAK). This group of stocks’ market values are closest to IDCC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DEA 15 143735 4
PRGS 27 254437 5
FSK 11 90364 -8
IMAB 3 37688 -1
ZNTL 11 785787 11
RMBS 18 147133 5
LILAK 27 251802 2
Average 16 244421 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $355 million in IDCC’s case. Progress Software Corporation (NASDAQ:PRGS) is the most popular stock in this table. On the other hand I-Mab (NASDAQ:IMAB) is the least popular one with only 3 bullish hedge fund positions. InterDigital, Inc. (NASDAQ:IDCC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IDCC is 72.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately IDCC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IDCC were disappointed as the stock returned 1.4% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.