Is Digital River, Inc. (DRIV) Going to Burn These Hedge Funds?: ClickSoftware Technologies Ltd. (CKSW), QuinStreet Inc (QNST)

Is Digital River, Inc. (NASDAQ:DRIV) the right pick for your portfolio? Money managers are turning less bullish. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience

Digital River, Inc. (NASDAQ:DRIV)If you’d ask most traders, hedge funds are seen as underperforming, outdated financial vehicles of the past. While there are greater than 8000 funds trading at present, we choose to focus on the masters of this group, around 450 funds. It is estimated that this group oversees the lion’s share of the smart money’s total capital, and by paying attention to their top investments, we have unsheathed a few investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (see the details here).

Equally as key, optimistic insider trading activity is another way to break down the marketplace. Obviously, there are a variety of reasons for an executive to sell shares of his or her company, but just one, very simple reason why they would buy. Plenty of empirical studies have demonstrated the useful potential of this tactic if “monkeys” understand where to look (learn more here).

Now, it’s important to take a glance at the recent action surrounding Digital River, Inc. (NASDAQ:DRIV).

How are hedge funds trading Digital River, Inc. (NASDAQ:DRIV)?

At the end of the fourth quarter, a total of 12 of the hedge funds we track were bullish in this stock, a change of 0% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably.

According to our comprehensive database, Steven Cohen’s SAC Capital Advisors had the biggest position in Digital River, Inc. (NASDAQ:DRIV), worth close to $26 million, comprising 0.1% of its total 13F portfolio. On SAC Capital Advisors’s heels is Jim Simons of Renaissance Technologies, with a $8 million position; the fund has 0% of its 13F portfolio invested in the stock. Remaining hedge funds that are bullish include Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Joel Greenblatt’s Gotham Asset Management.

Due to the fact that Digital River, Inc. (NASDAQ:DRIV) has faced a declination in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies that elected to cut their full holdings last quarter. At the top of the heap, James Dinan’s York Capital Management sold off the largest stake of the “upper crust” of funds we track, worth about $2 million in stock., and SAC Subsidiary of CR Intrinsic Investors was right behind this move, as the fund said goodbye to about $2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

How are insiders trading Digital River, Inc. (NASDAQ:DRIV)?

Bullish insider trading is most useful when the company we’re looking at has experienced transactions within the past half-year. Over the latest 180-day time frame, Digital River, Inc. (NASDAQ:DRIV) has experienced zero unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Digital River, Inc. (NASDAQ:DRIV). These stocks are ClickSoftware Technologies Ltd. (NASDAQ:CKSW), QuinStreet Inc (NASDAQ:QNST), Vocus, Inc. (NASDAQ:VOCS), Demand Media Inc (NYSE:DMD), and InterNAP Network Services (NASDAQ:INAP). This group of stocks are in the internet software & services industry and their market caps are similar to DRIV’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
ClickSoftware Technologies Ltd. (NASDAQ:CKSW) 6 0 0
QuinStreet Inc (NASDAQ:QNST) 8 1 0
Vocus, Inc. (NASDAQ:VOCS) 6 1 5
Demand Media Inc (NYSE:DMD) 8 0 2
InterNAP Network Services (NASDAQ:INAP) 6 1 3

With the returns exhibited by Insider Monkey’s tactics, retail investors should always monitor hedge fund and insider trading activity, and Digital River, Inc. (NASDAQ:DRIV) is no exception.

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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.