Hedge Funds Aren’t Crazy About Seadrill Ltd (SDRL) Anymore

What’s smart Seadrill Ltd (NYSE:SDRL) investor to do?

If you were to ask many market players, hedge funds are seen as delayed, outdated investment tools of an era lost to time. Although there are over 8,000 hedge funds trading currently, Insider Monkey aim at the crème de la crème of this club, close to 525 funds. It is widely held that this group has its hands on most of the smart money’s total assets, and by tracking their highest quality stock picks, we’ve unsheathed a few investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Equally as key, positive insider trading sentiment is a second way to analyze the stock market universe. There are a number of stimuli for an upper level exec to get rid of shares of his or her company, but just one, very simple reason why they would behave bullishly. Plenty of empirical studies have demonstrated the valuable potential of this strategy if you understand where to look (learn more here).

What’s more, it’s important to analyze the latest info for Seadrill Ltd (NYSE:SDRL).

What have hedge funds been doing with Seadrill Ltd (NYSE:SDRL)?

Heading into Q3, a total of 17 of the hedge funds we track held long positions in this stock, a change of -15% from one quarter earlier. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly.

When using filings from the hedgies we track, Jim Simons’s Renaissance Technologies had the most valuable position in Seadrill Ltd (NYSE:SDRL), worth close to $79.9 million, accounting for 0.2% of its total 13F portfolio. Coming in second is Two Sigma Advisors, managed by John Overdeck and David Siegel, which held a $37.8 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions include Richard L. Haydon’s Yield Capital Partners (Y/Cap Management), Steven Cohen’s SAC Capital Advisors and Sanford J. Colen’s Apex Capital.

Due to the fact Seadrill Ltd (NYSE:SDRL) has faced declining interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who were dropping their full holdings last quarter. Intriguingly, George Soros’s Soros Fund Management said goodbye to the biggest investment of all the hedgies we key on, totaling close to $13.4 million in stock. Mark Kingdon’s fund, Kingdon Capital, also said goodbye to its stock, about $5.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.

What do corporate executives and insiders think about Seadrill Ltd (NYSE:SDRL)?

Bullish insider trading is best served when the primary stock in question has seen transactions within the past six months. Over the last six-month time frame, Seadrill Ltd (NYSE:SDRL) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to Seadrill Ltd (NYSE:SDRL). These stocks are Diamond Offshore Drilling Inc (NYSE:DO), Concho Resources Inc. (NYSE:CXO), Cenovus Energy Inc (USA) (NYSE:CVE), ENSCO PLC (NYSE:ESV), and Transocean LTD (NYSE:RIG). This group of stocks belong to the oil & gas drilling & exploration industry and their market caps are similar to SDRL’s market cap.

Using the returns explained by the previously mentioned studies, average investors should always watch hedge fund and insider trading sentiment, and Seadrill Ltd (NYSE:SDRL) shareholders fit into this picture quite nicely.

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