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Diamondback Energy Inc (FANG): Hedge Funds Are Bearish; What Should You Do?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is Diamondback Energy Inc (NASDAQ:FANG) the right pick for your portfolio? The smart money is becoming less hopeful. The number of long hedge fund positions were cut by 8 in recent months. FANG was in 38 hedge funds’ portfolio at the end of the third quarter of 2015. There were 46 hedge funds in our database with FANG positions at the end of the previous quarter.

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In the 21st century investor’s toolkit there are numerous gauges investors have at their disposal to size up their stock investments. Some of the less known gauges are hedge fund and insider trading indicators. Hedge fund experts at Insider Monkey have shown that, historically, those who follow the top picks of the top investment managers can outpace the broader indices by a solid amount (see the details here).

With all of this in mind, we’re going to analyze the recent action regarding Diamondback Energy Inc (NASDAQ:FANG).

How have hedgies been trading Diamondback Energy Inc (NASDAQ:FANG)?

Heading into Q4, a total of 38 of the hedge funds tracked by Insider Monkey were long in this stock, a change of -17% from one quarter earlier. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially.

According to hedge fund experts at Insider Monkey, Ken Griffin’s Citadel Investment Group had the number one position in Diamondback Energy Inc (NASDAQ:FANG), worth close to $111.2 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Rob Citrone of Discovery Capital Management, with a $87.2 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining hedgies with similar optimism contain John Labanowski’s Brenham Capital Management, Israel Englander’s Millennium Management and Pasco Alfaro & Richard Tumure’s Miura Global Management.

Since Diamondback Energy Inc (NASDAQ:FANG) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Don Morgan’s Brigade Capital dumped the largest position of the 700 funds tracked by Insider Monkey, totaling close to $24.4 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $17.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 8 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Diamondback Energy Inc (NASDAQ:FANG). We will take a look at Teradata Corporation (NYSE:TDC), Weingarten Realty Investors (NYSE:WRI), Visteon Corp (NYSE:VC), and Old Republic International Corporation (NYSE:ORI). This group of stocks’ market values are similar to FANG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TDC 22 863642 -8
WRI 13 58023 2
VC 56 1559212 -1
ORI 21 172743 5

With the results shown by Insider Monkey’s time-tested strategies, retail investors must always keep an eye on hedge fund sentiment, and Diamondback Energy Inc (NASDAQ:FANG) applies perfectly to this mantra.

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