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

Is Diamondback Energy Inc (NASDAQ:FANG) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Diamondback Energy Inc (NASDAQ:FANG) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that fang isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Carl Icahn

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

What have hedge funds been doing with Diamondback Energy Inc (NASDAQ:FANG)?

At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FANG over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FANG Positions

The largest stake in Diamondback Energy Inc (NASDAQ:FANG) was held by Icahn Capital LP, which reported holding $526.7 million worth of stock at the end of March. It was followed by Corvex Capital with a $269.2 million position. Other investors bullish on the company included Millennium Management, Wexford Capital, and Viking Global.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Deep Basin Capital, managed by Matt Smith, established the most valuable position in Diamondback Energy Inc (NASDAQ:FANG). Deep Basin Capital had $60.9 million invested in the company at the end of the quarter. Robert Polak’s Anchor Bolt Capital also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are George McCabe’s Portolan Capital Management, Larry Foley and Paul Farrell’s Bronson Point Partners, and Sara Nainzadeh’s Centenus Global Management.

Let’s now review hedge fund activity in other stocks similar to Diamondback Energy Inc (NASDAQ:FANG). We will take a look at Tenaris S.A. (NYSE:TS), Liberty Broadband Corp (NASDAQ:LBRDK), Liberty Broadband Corp (NASDAQ:LBRDA), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks’ market valuations are closest to FANG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TS 15 775378 2
LBRDK 39 3313669 4
LBRDA 19 579556 0
CBRE 31 1403036 -3
Average 26 1517910 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1518 million. That figure was $1855 million in FANG’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Diamondback Energy Inc (NASDAQ:FANG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FANG, though not to the same extent, as the stock returned -1% during the same period and outperformed the market as well.

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