At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Borr Drilling Limited (NYSE:BORR).
Borr Drilling Limited (NYSE:BORR) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. BORR was in 3 hedge funds’ portfolios at the end of March. There were 4 hedge funds in our database with BORR positions at the end of the previous quarter. Our calculations also showed that BORR 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the recent hedge fund action surrounding Borr Drilling Limited (NYSE:BORR).
How are hedge funds trading Borr Drilling Limited (NYSE:BORR)?
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BORR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Pelham Capital held the most valuable stake in Borr Drilling Limited (NYSE:BORR), which was worth $1.7 million at the end of the third quarter. On the second spot was Orbis Investment Management which amassed $1.1 million worth of shares. Marshall Wace LLP was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Borr Drilling Limited (NYSE:BORR), around 0.25% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to BORR.
Seeing as Borr Drilling Limited (NYSE:BORR) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few hedgies that elected to cut their entire stakes heading into Q4. Interestingly, Israel Englander’s Millennium Management dropped the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $0.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Borr Drilling Limited (NYSE:BORR) but similarly valued. We will take a look at Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN), Pareteum Corporation (NASDAQ:TEUM), Riverview Financial Corporation (NASDAQ:RIVE), and Randolph Bancorp, Inc. (NASDAQ:RNDB). This group of stocks’ market valuations resemble BORR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRIN | 2 | 3362 | 0 |
| TEUM | 3 | 286 | 2 |
| RIVE | 5 | 6121 | -2 |
| RNDB | 2 | 1572 | 0 |
| Average | 3 | 2835 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $3 million in BORR’s case. Riverview Financial Corporation (NASDAQ:RIVE) is the most popular stock in this table. On the other hand Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN) is the least popular one with only 2 bullish hedge fund positions. Borr Drilling Limited (NYSE:BORR) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on BORR as the stock returned 42.3% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
