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Is Transocean Ltd (RIG) Going To Burn These Hedge Funds ?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Transocean Ltd (NYSE:RIG) a buy, sell, or hold? The best stock pickers are taking a bearish view. The number of bullish hedge fund bets dropped by 6 in recent months. Our calculations also showed that RIG isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most investors, hedge funds are assumed to be slow, old financial tools of the past. While there are greater than 8000 funds in operation today, Our experts choose to focus on the upper echelon of this group, approximately 750 funds. These investment experts control the lion’s share of all hedge funds’ total capital, and by following their inimitable investments, Insider Monkey has figured out a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Kerr Neilson

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the new hedge fund action encompassing Transocean Ltd (NYSE:RIG).

How have hedgies been trading Transocean Ltd (NYSE:RIG)?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in RIG a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with RIG Positions

Of the funds tracked by Insider Monkey, Platinum Asset Management, managed by Kerr Neilson, holds the biggest position in Transocean Ltd (NYSE:RIG). Platinum Asset Management has a $116.7 million position in the stock, comprising 2.7% of its 13F portfolio. On Platinum Asset Management’s heels is Israel Englander of Millennium Management, with a $74.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism include Marc Lasry’s Avenue Capital, Renaissance Technologies and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Transocean Ltd (NYSE:RIG) has experienced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedgies that elected to cut their positions entirely last quarter. Interestingly, Alex Snow’s Lansdowne Partners dropped the largest investment of the 750 funds watched by Insider Monkey, totaling close to $28.4 million in call options. Mike Masters’s fund, Masters Capital Management, also cut its call options, about $15 million worth. These transactions are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Transocean Ltd (NYSE:RIG) but similarly valued. We will take a look at FirstService Corporation (NASDAQ:FSV), China Biologic Products Holdings, Inc. (NASDAQ:CBPO), Tech Data Corporation (NASDAQ:TECD), and Azul S.A. (NYSE:AZUL). This group of stocks’ market values match RIG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FSV 10 140690 -1
CBPO 9 144845 1
TECD 18 281786 -1
AZUL 13 173988 1
Average 12.5 185327 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $494 million in RIG’s case. Tech Data Corporation (NASDAQ:TECD) is the most popular stock in this table. On the other hand China Biologic Products Holdings, Inc. (NASDAQ:CBPO) is the least popular one with only 9 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -30.3% during the third 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 many of these stocks already outperformed the market in Q3.

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

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