Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Diamondback Energy Inc (NASDAQ:FANG) changed recently.
Diamondback Energy Inc (NASDAQ:FANG) investors should pay attention to a decrease in hedge fund sentiment of late. Our calculations also showed that FANG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Keith Meister of Corvex Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to review the latest hedge fund action regarding Diamondback Energy Inc (NASDAQ:FANG).
What have hedge funds been doing with Diamondback Energy Inc (NASDAQ:FANG)?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in FANG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Diamondback Energy Inc (NASDAQ:FANG) was held by Corvex Capital, which reported holding $263.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $216.4 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Corvex Capital allocated the biggest weight to Diamondback Energy Inc (NASDAQ:FANG), around 13.08% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 7.5 percent of its 13F equity portfolio to FANG.
Seeing as Diamondback Energy Inc (NASDAQ:FANG) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of hedge funds that decided to sell off their positions entirely last quarter. It’s worth mentioning that Perella Weinberg Partners sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $44.8 million in stock. Matt Smith’s fund, Deep Basin Capital, also dropped its stock, about $28 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 7 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Diamondback Energy Inc (NASDAQ:FANG) but similarly valued. We will take a look at Symantec Corporation (NASDAQ:SYMC), CarMax Inc (NYSE:KMX), Brookfield Infrastructure Partners L.P. (NYSE:BIP), and Genuine Parts Company (NYSE:GPC). This group of stocks’ market caps resemble FANG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SYMC | 38 | 1527336 | 3 |
| KMX | 41 | 1886723 | 2 |
| BIP | 7 | 54208 | 0 |
| GPC | 20 | 186065 | 0 |
| Average | 26.5 | 913583 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $914 million. That figure was $1201 million in FANG’s case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 7 bullish hedge fund positions. Diamondback Energy Inc (NASDAQ:FANG) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately FANG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FANG were disappointed as the stock returned -3.2% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
