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Did Hedge Funds Make The Right Call On Transocean Ltd (RIG) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Transocean Ltd (NYSE:RIG) based on that data and determine whether they were really smart about the stock.

Transocean Ltd (NYSE:RIG) has seen a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that RIG 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.

If you’d ask most market participants, hedge funds are viewed as unimportant, outdated investment tools of years past. While there are over 8000 funds with their doors open at present, We hone in on the upper echelon of this group, approximately 850 funds. These hedge fund managers oversee bulk of all hedge funds’ total capital, and by keeping an eye on their highest performing picks, Insider Monkey has deciphered many investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a look at the key hedge fund action regarding Transocean Ltd (NYSE:RIG).

How are hedge funds trading Transocean Ltd (NYSE:RIG)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RIG over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RIG A Good Stock To Buy?

The largest stake in Transocean Ltd (NYSE:RIG) was held by Contrarius Investment Management, which reported holding $49.6 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $18.1 million position. Other investors bullish on the company included Luminus Management, Avenue Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Transocean Ltd (NYSE:RIG), around 7.23% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, dishing out 6.35 percent of its 13F equity portfolio to RIG.

Because Transocean Ltd (NYSE:RIG) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there were a few funds who were dropping their full holdings in the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $11.4 million in stock, and Howard Marks’s Oaktree Capital Management was right behind this move, as the fund dumped about $10.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Transocean Ltd (NYSE:RIG). We will take a look at Granite Construction Incorporated (NYSE:GVA), Arcos Dorados Holding Inc (NYSE:ARCO), Tronox Holdings Plc (NYSE:TROX), and AudioCodes Ltd. (NASDAQ:AUDC). All of these stocks’ market caps match RIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GVA 16 45982 9
ARCO 12 36064 -1
TROX 17 52262 -6
AUDC 10 37318 1
Average 13.75 42907 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $117 million in RIG’s case. Tronox Holdings Plc (NYSE:TROX) is the most popular stock in this table. On the other hand AudioCodes Ltd. (NASDAQ:AUDC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Transocean Ltd (NYSE:RIG) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on RIG as the stock returned 89.7% since Q1 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.

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