Equity Commonwealth (EQC): Are Hedge Funds Right About This Stock?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Equity Commonwealth (NYSE:EQC).

Equity Commonwealth (NYSE:EQC) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistic is 28. EQC has experienced an increase in hedge fund interest lately. There were 21 hedge funds in our database with EQC positions at the end of the first quarter. Our calculations also showed that EQC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 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.

John Rogers of Ariel Investments

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the key hedge fund action encompassing Equity Commonwealth (NYSE:EQC).

Do Hedge Funds Think EQC Is A Good Stock To Buy Now?

At second quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EQC over the last 24 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Equity Commonwealth (NYSE:EQC) was held by Ariel Investments, which reported holding $36.1 million worth of stock at the end of June. It was followed by Renaissance Technologies with a $33.7 million position. Other investors bullish on the company included Driehaus Capital, Royce & Associates, and D E Shaw. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Equity Commonwealth (NYSE:EQC), around 0.51% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 0.34 percent of its 13F equity portfolio to EQC.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Equity Commonwealth (NYSE:EQC). Balyasny Asset Management had $3.9 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also initiated a $3 million position during the quarter. The other funds with brand new EQC positions are Matthew Halbower’s Pentwater Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Renee Yao’s Neo Ivy Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Equity Commonwealth (NYSE:EQC). We will take a look at Globalstar, Inc. (NYSE:GSAT), Owens & Minor, Inc. (NYSE:OMI), Simmons First National Corporation (NASDAQ:SFNC), SITE Centers Corp. (NYSE:SITC), Essential Properties Realty Trust, Inc. (NYSE:EPRT), Tower Semiconductor Ltd. (NASDAQ:TSEM), and Graham Holdings Co (NYSE:GHC). This group of stocks’ market values resemble EQC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $159 million in EQC’s case. Graham Holdings Co (NYSE:GHC) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 7 bullish hedge fund positions. Equity Commonwealth (NYSE:EQC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EQC is 81.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately EQC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EQC were disappointed as the stock returned 1.7% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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