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Should You Be Concerned About Diamond Offshore Drilling Inc (DO)’s Falling Hedge Fund Ownership?

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Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Is Diamond Offshore Drilling Inc (NYSE:DO) a buy here? The best stock pickers are turning less bullish. The number of bullish hedge fund bets were trimmed by 1 in recent months. DO was in 24 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with DO positions at the end of the previous quarter. At the end of this article we will also compare DO to other stocks including Outfront Media Inc (NYSE:OUT), Quanta Services Inc (NYSE:PWR), and PAREXEL International Corporation (NASDAQ:PRXL) to get a better sense of its popularity.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What have hedge funds been doing with Diamond Offshore Drilling Inc (NYSE:DO)?

Heading into the fourth quarter of 2016, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 4% dip from the second quarter of 2016 and the second straight quarterly drop in hedge fund ownership, with it having fallen by 25% during that time. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

HedgeFundSentimentChart

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’ AQR Capital Management has the biggest position in Diamond Offshore Drilling Inc (NYSE:DO), worth close to $64.2 million. The second most bullish fund manager is Point72 Asset Management, led by Steve Cohen, holding a $19.1 million position. Remaining members of the smart money that hold long positions comprise Paul Marshall and Ian Wace’s Marshall Wace LLP, Vince Maddi and Shawn Brennan’s SIR Capital Management and Chuck Royce’s Royce & Associates.

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