Did Hedge Funds Make The Right Call On Equity Commonwealth (EQC) ?

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 Equity Commonwealth (NYSE:EQC) based on that data and determine whether they were really smart about the stock.

Equity Commonwealth (NYSE:EQC) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. EQC was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with EQC holdings at the end of the previous quarter. Our calculations also showed that EQC 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.

To most traders, hedge funds are assumed to be worthless, old investment tools of the past. While there are more than 8000 funds trading today, Our researchers look at the top tier of this club, around 850 funds. It is estimated that this group of investors shepherd bulk of the smart money’s total asset base, and by observing their top investments, Insider Monkey has found various investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum 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 .

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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. Keeping this in mind we’re going to take a glance at the new hedge fund action surrounding Equity Commonwealth (NYSE:EQC).

Hedge fund activity in Equity Commonwealth (NYSE:EQC)

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EQC over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Equity Commonwealth (NYSE:EQC), which was worth $36.6 million at the end of the third quarter. On the second spot was Hudson Way Capital Management which amassed $35 million worth of shares. Renaissance Technologies, Ariel Investments, and D E Shaw were 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 Hudson Way Capital Management allocated the biggest weight to Equity Commonwealth (NYSE:EQC), around 16.2% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to EQC.

Due to the fact that Equity Commonwealth (NYSE:EQC) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few money managers who were dropping their entire stakes heading into Q4. At the top of the heap, Jeffrey Bronchick’s Cove Street Capital sold off the largest position of the 750 funds watched by Insider Monkey, worth about $14.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $12.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Equity Commonwealth (NYSE:EQC) but similarly valued. These stocks are Cogent Communications Holdings Inc. (NASDAQ:CCOI), Tetra Tech, Inc. (NASDAQ:TTEK), Plains All American Pipeline, L.P. (NYSE:PAA), and Allison Transmission Holdings Inc (NYSE:ALSN). All of these stocks’ market caps resemble EQC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $176 million in EQC’s case. Cogent Communications Holdings Inc. (NASDAQ:CCOI) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 8 bullish hedge fund positions. Equity Commonwealth (NYSE:EQC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately EQC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EQC investors were disappointed as the stock returned -0.9% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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