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Hedge Funds Dropped The Ball On Diamondback Energy Inc (FANG)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Diamondback Energy Inc (NASDAQ:FANG) based on that data.

Diamondback Energy Inc (NASDAQ:FANG) was in 31 hedge funds’ portfolios at the end of the first quarter of 2020. FANG investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 44 hedge funds in our database with FANG positions at the end of the previous quarter. Our calculations also showed that FANG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 monthly stock picks returned 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 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

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the recent hedge fund action surrounding Diamondback Energy Inc (NASDAQ:FANG).

Hedge fund activity in Diamondback Energy Inc (NASDAQ:FANG)

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FANG over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is FANG A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Clint Carlson’s Carlson Capital has the number one position in Diamondback Energy Inc (NASDAQ:FANG), worth close to $32.1 million, amounting to 0.8% of its total 13F portfolio. The second most bullish fund manager is Corvex Capital, managed by Keith Meister, which holds a $31.1 million position; 2.4% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions comprise Dmitry Balyasny’s Balyasny Asset Management, Israel Englander’s Millennium Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Birch Run Capital allocated the biggest weight to Diamondback Energy Inc (NASDAQ:FANG), around 3.72% of its 13F portfolio. Corvex Capital is also relatively very bullish on the stock, setting aside 2.41 percent of its 13F equity portfolio to FANG.

Seeing as Diamondback Energy Inc (NASDAQ:FANG) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the biggest position of the 750 funds tracked by Insider Monkey, comprising about $86.3 million in stock. Leon Cooperman’s fund, Omega Advisors, also said goodbye to its stock, about $37.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 13 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Diamondback Energy Inc (NASDAQ:FANG). We will take a look at Lincoln Electric Holdings, Inc. (NASDAQ:LECO), China Biologic Products Inc (NASDAQ:CBPO), Gold Fields Limited (NYSE:GFI), and Comerica Incorporated (NYSE:CMA). All of these stocks’ market caps are similar to FANG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LECO 19 157727 3
CBPO 16 612733 -3
GFI 22 244665 4
CMA 33 255146 -3
Average 22.5 317568 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $241 million in FANG’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand China Biologic Products Inc (NASDAQ:CBPO) is the least popular one with only 16 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on FANG as the stock returned 64% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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