Did Hedge Funds Drop The Ball On Transocean Ltd (RIG) ?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Transocean Ltd (NYSE:RIG).

Is Transocean Ltd (NYSE:RIG) going to take off soon? The smart money is turning less bullish. The number of long hedge fund positions retreated by 9 recently. Our calculations also showed that RIG isn’t among the 30 most popular stocks among hedge funds. RIG was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 42 hedge funds in our database with RIG holdings at the end of the previous quarter.

If you’d ask most stock holders, hedge funds are seen as slow, old investment vehicles of the past. While there are over 8000 funds with their doors open today, Our experts hone in on the bigwigs of this club, about 750 funds. These investment experts control bulk of the hedge fund industry’s total capital, and by watching their unrivaled stock picks, Insider Monkey has identified a few investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Kerr Neilson

We’re going to take a peek at the key hedge fund action surrounding Transocean Ltd (NYSE:RIG).

Hedge fund activity in Transocean Ltd (NYSE:RIG)

At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards RIG over the last 14 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).


The largest stake in Transocean Ltd (NYSE:RIG) was held by Platinum Asset Management, which reported holding $114.9 million worth of stock at the end of September. It was followed by Elliott Management with a $103.6 million position. Other investors bullish on the company included Orbis Investment Management, Renaissance Technologies, and Valueworks LLC.

Because Transocean Ltd (NYSE:RIG) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, Till Bechtolsheimer’s Arosa Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $27.9 million in call options. Robert Polak’s fund, Anchor Bolt Capital, also cut its call options, about $22.7 million worth. These moves are interesting, as total hedge fund interest dropped by 9 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Transocean Ltd (NYSE:RIG) but similarly valued. These stocks are ITT Inc. (NYSE:ITT), Penumbra Inc (NYSE:PEN), Texas Pacific Land Trust (NYSE:TPL), and JBG SMITH Properties (NYSE:JBGS). This group of stocks’ market valuations are similar to RIG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITT 25 308324 6
PEN 18 231703 -7
TPL 13 1041180 2
JBGS 20 271835 3
Average 19 463261 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $463 million. That figure was $755 million in RIG’s case. ITT Inc. (NYSE:ITT) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Transocean Ltd (NYSE:RIG) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on RIG as the stock returned 38.6% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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