Where Do Hedge Funds Stand On Digimarc Corp (DMRC)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Digimarc Corp (NASDAQ:DMRC) changed recently.

Digimarc Corp (NASDAQ:DMRC) has experienced a decrease in support from the world’s most elite money managers in recent months. Digimarc Corp (NASDAQ:DMRC) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. There were 7 hedge funds in our database with DMRC positions at the end of the second quarter. Our calculations also showed that DMRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 Algert of Algert Global

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. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to view the key hedge fund action surrounding Digimarc Corp (NASDAQ:DMRC).

Hedge fund activity in Digimarc Corp (NASDAQ:DMRC)

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DMRC over the last 21 quarters. So, let’s check out 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 $21 million worth of stock at the end of September. It was followed by D E Shaw with a $4.1 million position. Other investors bullish on the company included PEAK6 Capital Management, Tudor Investment Corp, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Digimarc Corp (NASDAQ:DMRC), around 1.19% of its 13F portfolio. Algert Global is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to DMRC.

Seeing as Digimarc Corp (NASDAQ:DMRC) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who were dropping their full holdings in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest investment of the 750 funds monitored by Insider Monkey, comprising an estimated $0.2 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Digimarc Corp (NASDAQ:DMRC). We will take a look at Paysign, Inc. (NASDAQ:PAYS), TravelCenters of America Inc. (NASDAQ:TA), Microvision, Inc. (NASDAQ:MVIS), Citizens, Inc. (NYSE:CIA), Oppenheimer Holdings Inc. (NYSE:OPY), Powell Industries, Inc. (NASDAQ:POWL), and Jounce Therapeutics, Inc. (NASDAQ:JNCE). This group of stocks’ market values match DMRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAYS 5 9896 0
TA 12 62213 5
MVIS 2 237 0
CIA 2 2160 0
OPY 10 20369 2
POWL 13 27224 0
JNCE 12 14074 0
Average 8 19453 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $26 million in DMRC’s case. Powell Industries, Inc. (NASDAQ:POWL) is the most popular stock in this table. On the other hand Microvision, Inc. (NASDAQ:MVIS) is the least popular one with only 2 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 overall hedge fund sentiment score for DMRC is 44.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on DMRC as the stock returned 90.9% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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