Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in Diana Shipping Inc. (NYSE:DSX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DSX to other stocks including Kadmon Holdings, Inc. (NYSE:KDMN), Business First Bancshares, Inc. (NASDAQ:BFST), and Limoneira Company (NASDAQ:LMNR) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are several gauges stock market investors have at their disposal to evaluate their stock investments. Some of the most under-the-radar gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace their index-focused peers by a solid margin (see the details here).
[caption id="attachment_193003" align="aligncenter" width="600"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's take a glance at the recent hedge fund action encompassing Diana Shipping Inc. (NYSE:DSX).
What have hedge funds been doing with Diana Shipping Inc. (NYSE:DSX)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DSX over the last 17 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.
More specifically, Kopernik Global Investors was the largest shareholder of Diana Shipping Inc. (NYSE:DSX), with a stake worth $16.9 million reported as of the end of September. Trailing Kopernik Global Investors was Renaissance Technologies, which amassed a stake valued at $6.2 million. 683 Capital Partners, Royce & Associates, and 12 West Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Diana Shipping Inc. (NYSE:DSX), around 3.2% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, earmarking 0.1 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: Citadel Investment Group. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was ExodusPoint Capital).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Diana Shipping Inc. (NYSE:DSX) but similarly valued. We will take a look at Kadmon Holdings, Inc. (NYSE:KDMN), Business First Bancshares, Inc. (NASDAQ:BFST), Limoneira Company (NASDAQ:LMNR), and Ranpak Holdings Corp (NYSE:PACK). This group of stocks' market values match DSX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KDMN,15,144793,0 BFST,2,14267,1 LMNR,6,3407,4 PACK,14,179385,-2 Average,9.25,85463,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $26 million in DSX's case. Kadmon Holdings, Inc. (NYSE:KDMN) is the most popular stock in this table. On the other hand Business First Bancshares, Inc. (NASDAQ:BFST) is the least popular one with only 2 bullish hedge fund positions. Diana Shipping Inc. (NYSE:DSX) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DSX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DSX investors were disappointed as the stock returned 3% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.