“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards DiamondRock Hospitality Company (NYSE:DRH).
DiamondRock Hospitality Company (NYSE:DRH) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. Our calculations also showed that DRH isn’t among the 30 most popular stocks among hedge funds.
In the 21st century investor’s toolkit there are plenty of tools investors use to value stocks. Some of the most under-the-radar tools are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best fund managers can trounce their index-focused peers by a solid amount (see the details here).
Let’s go over the fresh hedge fund action surrounding DiamondRock Hospitality Company (NYSE:DRH).
What have hedge funds been doing with DiamondRock Hospitality Company (NYSE:DRH)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in DRH a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Parag Vora’s HG Vora Capital Management has the biggest position in DiamondRock Hospitality Company (NYSE:DRH), worth close to $83.9 million, corresponding to 6.2% of its total 13F portfolio. On HG Vora Capital Management’s heels is Long Pond Capital, managed by John Khoury, which holds a $31 million position; 1.1% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish encompass Dmitry Balyasny’s Balyasny Asset Management, Israel Englander’s Millennium Management and Richard S. Pzena’s Pzena Investment Management.
Judging by the fact that DiamondRock Hospitality Company (NYSE:DRH) has experienced falling interest from hedge fund managers, it’s safe to say that there exists a select few money managers that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw sold off the largest stake of all the hedgies monitored by Insider Monkey, worth about $4.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $1.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as DiamondRock Hospitality Company (NYSE:DRH) but similarly valued. These stocks are Zuora, Inc. (NYSE:ZUO), Carpenter Technology Corporation (NYSE:CRS), American Assets Trust, Inc (NYSE:AAT), and WesBanco, Inc. (NASDAQ:WSBC). All of these stocks’ market caps are similar to DRH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZUO | 21 | 116298 | 7 |
| CRS | 13 | 82466 | -2 |
| AAT | 14 | 114971 | 0 |
| WSBC | 8 | 48499 | 3 |
| Average | 14 | 90559 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $207 million in DRH’s case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand WesBanco, Inc. (NASDAQ:WSBC) is the least popular one with only 8 bullish hedge fund positions. DiamondRock Hospitality Company (NYSE:DRH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately DRH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DRH investors were disappointed as the stock returned -4% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
