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Hedge Funds Have Never Been This Bullish On Diamondback Energy (FANG)

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Diamondback Energy Inc (NASDAQ:FANG).

Diamondback Energy Inc (NASDAQ:FANG) was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2018. FANG has seen an increase in hedge fund sentiment of late. There were 37 hedge funds in our database with FANG positions at the end of the previous quarter. Overall hedge fund sentiment towards FANG is at its all time high. This is usually a bullish indicator. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and MSCI which returned 29%. Both stocks outperformed the S&P 500 Index by 14 and 16 percentage points respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, MTB, VAR and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Keith Meister, Corvex Capital

We’re going to review the recent hedge fund action encompassing Diamondback Energy Inc (NASDAQ:FANG).

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

Heading into the first quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FANG over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FANG_mar2019

More specifically, Icahn Capital LP was the largest shareholder of Diamondback Energy Inc (NASDAQ:FANG), with a stake worth $577.3 million reported as of the end of September. Trailing Icahn Capital LP was Corvex Capital, which amassed a stake valued at $327.1 million. Citadel Investment Group, Point72 Asset Management, and Viking Global were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Icahn Capital LP, managed by Carl Icahn, assembled the most outsized position in Diamondback Energy Inc (NASDAQ:FANG). Icahn Capital LP had $577.3 million invested in the company at the end of the quarter. Keith Meister’s Corvex Capital also made a $327.1 million investment in the stock during the quarter. The following funds were also among the new FANG investors: Andreas Halvorsen’s Viking Global, Todd J. Kantor’s Encompass Capital Advisors, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at 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 Cheniere Energy, Inc. (NYSEAMEX:LNG), Magna International Inc. (NYSE:MGA), Franklin Resources, Inc. (NYSE:BEN), and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). This group of stocks’ market caps match FANG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LNG 46 5003221 4
MGA 22 283606 2
BEN 28 817153 -1
BMRN 37 1854387 -3
Average 33.25 1989592 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1990 million. That figure was $2135 million in FANG’s case. Cheniere Energy, Inc. (NYSEAMEX:LNG) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 22 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately FANG wasn’t in this group. Hedge funds that bet on FANG were disappointed as the stock returned 10.6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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