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Hedge Fund Darlings vs. Transocean Ltd (RIG) In 2019

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Transocean Ltd (NYSE:RIG) and compare its performance against hedge funds’ favorite stocks.

Transocean Ltd (NYSE:RIG) was in 36 hedge funds’ portfolios at the end of September. RIG shareholders have witnessed an increase in enthusiasm from smart money recently. There were 31 hedge funds in our database with RIG holdings at the end of the previous quarter. Our calculations also showed that RIG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AVENUE CAPITAL

Marc Lasry of Avenue Capital

We leave no stone unturned when looking for the next great investment idea. For example 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. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to check out the new hedge fund action surrounding Transocean Ltd (NYSE:RIG).

Hedge fund activity in Transocean Ltd (NYSE:RIG)

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the second quarter of 2019. On the other hand, there were a total of 42 hedge funds with a bullish position in RIG a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Kerr Neilson’s Platinum Asset Management has the most valuable position in Transocean Ltd (NYSE:RIG), worth close to $81.4 million, comprising 1.8% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $34.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Marc Lasry’s Avenue Capital, Douglas Dossey and Arthur Young’s Tensile Capital and Mike Masters’s Masters Capital Management. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Transocean Ltd (NYSE:RIG), around 11.21% of its 13F portfolio. Valueworks LLC is also relatively very bullish on the stock, earmarking 3.08 percent of its 13F equity portfolio to RIG.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, assembled the biggest position in Transocean Ltd (NYSE:RIG). Alyeska Investment Group had $11.9 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also initiated a $5.4 million position during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Michael Gelband’s ExodusPoint Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to Transocean Ltd (NYSE:RIG). These stocks are SINA Corp (NASDAQ:SINA), CONMED Corporation (NASDAQ:CNMD), Herman Miller, Inc. (NASDAQ:MLHR), and EQT Corporation (NYSE:EQT). This group of stocks’ market valuations match RIG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SINA 19 256685 0
CNMD 22 201980 3
MLHR 26 209936 1
EQT 35 442221 0
Average 25.5 277706 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $256 million in RIG’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand SINA Corp (NASDAQ:SINA) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Transocean Ltd (NYSE:RIG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately RIG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RIG were disappointed as the stock returned -5.8% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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