In this article we will check out the progression of hedge fund sentiment towards Diana Shipping Inc. (NYSE:DSX) 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.
Diana Shipping Inc. (NYSE:DSX) was in 9 hedge funds' portfolios at the end of March. DSX has seen a decrease in hedge fund sentiment lately. There were 10 hedge funds in our database with DSX holdings at the end of the previous quarter. Our calculations also showed that DSX 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.
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' 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
[caption id="attachment_26286" align="aligncenter" width="359"] Jim Simons Founder of Renaissance Technologies[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. 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. Keeping this in mind let's take a glance at the latest hedge fund action encompassing Diana Shipping Inc. (NYSE:DSX).
Hedge fund activity in Diana Shipping Inc. (NYSE:DSX)
At Q1's end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in DSX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Jeremy Hosking's Hosking Partners has the biggest position in Diana Shipping Inc. (NYSE:DSX), worth close to $7.9 million, corresponding to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Kopernik Global Investors, managed by David Iben, which holds a $7.2 million position; 1.5% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism encompass Renaissance Technologies, Joel Ramin's 12 West Capital Management and Ari Zweiman's 683 Capital Partners. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Diana Shipping Inc. (NYSE:DSX), around 1.54% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, setting aside 0.28 percent of its 13F equity portfolio to DSX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified DSX as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks similar to Diana Shipping Inc. (NYSE:DSX). These stocks are GlobalSCAPE, Inc. (NYSE:GSB), Reliant Bancorp, Inc. (NASDAQ:RBNC), MainStreet Bancshares, Inc. (NASDAQ:MNSB), and First Business Financial Services Inc (NASDAQ:FBIZ). This group of stocks' market values are similar to DSX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSB,11,12519,-2 RBNC,5,4620,3 MNSB,1,6742,0 FBIZ,4,4956,0 Average,5.25,7209,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $18 million in DSX's case. GlobalSCAPE, Inc. (NYSE:GSB) is the most popular stock in this table. On the other hand MainStreet Bancshares, Inc. (NASDAQ:MNSB) is the least popular one with only 1 bullish hedge fund positions. Diana Shipping Inc. (NYSE:DSX) 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 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately DSX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DSX were disappointed as the stock returned 20.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.