We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Equity Commonwealth (NYSE:EQC) based on that data.
Equity Commonwealth (NYSE:EQC) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that EQC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Bronchick of Cove Street Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let’s review the key hedge fund action surrounding Equity Commonwealth (NYSE:EQC).
What does smart money think about Equity Commonwealth (NYSE:EQC)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in EQC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Hudson Way Capital Management, managed by William Hyatt, holds the number one position in Equity Commonwealth (NYSE:EQC). Hudson Way Capital Management has a $28.9 million position in the stock, comprising 11.3% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $16.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Jeffrey Bronchick’s Cove Street Capital, Dmitry Balyasny’s Balyasny Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Hudson Way Capital Management allocated the biggest weight to Equity Commonwealth (NYSE:EQC), around 11.33% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 1.96 percent of its 13F equity portfolio to EQC.
Because Equity Commonwealth (NYSE:EQC) has experienced bearish sentiment from the smart money, it’s easy to see that there were a few money managers that slashed their entire stakes in the third quarter. Interestingly, J. Alan Reid, Jr.’s Forward Management dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $1.6 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund sold off about $1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Equity Commonwealth (NYSE:EQC). These stocks are Service Properties Trust (NASDAQ:SVC), Alcoa Corporation (NYSE:AA), Medallia, Inc. (NYSE:MDLA), and Gates Industrial Corporation plc (NYSE:GTES). This group of stocks’ market caps resemble EQC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SVC | 17 | 59382 | 2 |
| AA | 30 | 660355 | -3 |
| MDLA | 22 | 301398 | -1 |
| GTES | 9 | 61213 | -6 |
| Average | 19.5 | 270587 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $141 million in EQC’s case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 9 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 calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on EQC as the stock returned -5.3% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
