Is Dominion Diamond Corp (DDC) Going to Burn These Hedge Funds?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Dominion Diamond Corp (NYSE:DDC).

Dominion Diamond Corp (NYSE:DDC) investors should pay attention to a decrease in hedge fund sentiment lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as New Senior Investment Group Inc (NYSE:SNR), Just Energy Group, Inc. Ordinary Shares (Canada) (NYSE:JE), and HeartWare International Inc (NASDAQ:HTWR) to gather more data points.

In today’s marketplace there are dozens of metrics stock traders use to appraise stocks. Two of the best metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce the S&P 500 by a superb margin (see the details here).

Now, we’re going to view the key action surrounding Dominion Diamond Corp (NYSE:DDC).

What does the smart money think about Dominion Diamond Corp (NYSE:DDC)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 18% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the largest position in Dominion Diamond Corp (NYSE:DDC). Renaissance Technologies has a $19.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Glenhill Advisors, managed by Glenn J. Krevlin, which holds a $17.8 million position; 1.4% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions consist of Kurt Billick’s Bocage Capital, D. E. Shaw’s D E Shaw and Mario Gabelli’s GAMCO Investors.

Judging by the fact that Dominion Diamond Corp (NYSE:DDC) has faced falling interest from hedge fund managers, it’s easy to see that there is a sect of money managers who were dropping their full holdings by the end of the third quarter. Interestingly, Steve Pei’s Gratia Capital dumped the biggest investment of the 700 funds followed by Insider Monkey, worth an estimated $4.2 million in stock. Mark N. Diker’s fund, Diker Management, also cut its stock, about $3.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dominion Diamond Corp (NYSE:DDC) but similarly valued. These stocks are New Senior Investment Group Inc (NYSE:SNR), Just Energy Group, Inc. Ordinary Shares (Canada) (NYSE:JE), HeartWare International Inc (NASDAQ:HTWR), and Golar LNG Partners LP (NASDAQ:GMLP). All of these stocks’ market caps are closest to DDC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNR 17 262030 -10
JE 10 14062 3
HTWR 21 216329 6
GMLP 4 27198 -3

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $130 million, versus $71 million in DDC’s case. HeartWare International Inc (NASDAQ:HTWR) is the most popular stock in this table, while Golar LNG Partners LP (NASDAQ:GMLP) is the least popular one with only 4 bullish hedge fund positions. Dominion Diamond Corp (NYSE:DDC) 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. In this regard HTWR might be a better candidate to consider a long position.