In this article we will check out the progression of hedge fund sentiment towards DiamondRock Hospitality Company (NYSE:DRH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
DiamondRock Hospitality Company (NYSE:DRH) investors should be aware of a decrease in support from the world's most elite money managers recently. Our calculations also showed that DRH 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 dozens of indicators stock traders employ to appraise publicly traded companies. A duo of the best indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can trounce their index-focused peers by a very impressive amount (see the details here).
[caption id="attachment_338852" align="aligncenter" width="398"] Richard S. Pzena of Pzena Investment Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a peek at the key hedge fund action regarding DiamondRock Hospitality Company (NYSE:DRH).
What does smart money think about DiamondRock Hospitality Company (NYSE:DRH)?
At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DRH over the last 18 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, D. E. Shaw's D E Shaw has the number one position in DiamondRock Hospitality Company (NYSE:DRH), worth close to $8.8 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Richard S. Pzena of Pzena Investment Management, with a $7.9 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish contain Dmitry Balyasny's Balyasny Asset Management, Paul Marshall and Ian Wace's Marshall Wace LLP and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position 1060 Capital Management allocated the biggest weight to DiamondRock Hospitality Company (NYSE:DRH), around 2.55% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to DRH.
Judging by the fact that DiamondRock Hospitality Company (NYSE:DRH) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who sold off their entire stakes last quarter. Intriguingly, Greg Poole's Echo Street Capital Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, worth close to $15.4 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also said goodbye to its stock, about $7.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as DiamondRock Hospitality Company (NYSE:DRH) but similarly valued. We will take a look at Terex Corporation (NYSE:TEX), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Hope Bancorp, Inc. (NASDAQ:HOPE), and SFL Corporation Ltd. (NYSE:SFL). This group of stocks' market caps resemble DRH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEX,21,147440,-1 ITCI,19,99236,7 HOPE,18,42707,-1 SFL,14,43537,0 Average,18,83230,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $39 million in DRH's case. Terex Corporation (NYSE:TEX) is the most popular stock in this table. On the other hand SFL Corporation Ltd. (NYSE:SFL) is the least popular one with only 14 bullish hedge fund positions. DiamondRock Hospitality Company (NYSE:DRH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately DRH wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DRH investors were disappointed as the stock returned 2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.