Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Equinix Inc (NASDAQ:EQIX) changed during the first quarter.
Equinix Inc (NASDAQ:EQIX) has seen a decrease in enthusiasm from smart money lately. EQIX was in 33 hedge funds’ portfolios at the end of September. There were 38 hedge funds in our database with EQIX holdings at the end of the previous quarter. Our calculations also showed that EQIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 Burbank of Passport Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action encompassing Equinix Inc (NASDAQ:EQIX).
How are hedge funds trading Equinix Inc (NASDAQ:EQIX)?
At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 41 hedge funds with a bullish position in EQIX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Equinix Inc (NASDAQ:EQIX) was held by Alkeon Capital Management, which reported holding $277.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $256.2 million position. Other investors bullish on the company included Farallon Capital, Rivulet Capital, and Eminence Capital. In terms of the portfolio weights assigned to each position Passport Capital allocated the biggest weight to Equinix Inc (NASDAQ:EQIX), around 22.17% of its portfolio. Rivulet Capital is also relatively very bullish on the stock, earmarking 15.01 percent of its 13F equity portfolio to EQIX.
Judging by the fact that Equinix Inc (NASDAQ:EQIX) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Brandon Haley’s Holocene Advisors dumped the largest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $45.1 million in stock, and Jeffrey Furber’s AEW Capital Management was right behind this move, as the fund sold off about $44.4 million worth. These transactions are important to note, as total hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Equinix Inc (NASDAQ:EQIX) but similarly valued. We will take a look at Air Products & Chemicals, Inc. (NYSE:APD), Kimberly Clark Corporation (NYSE:KMB), Waste Management, Inc. (NYSE:WM), and American International Group Inc (NYSE:AIG). This group of stocks’ market valuations are closest to EQIX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APD | 38 | 478746 | 6 |
| KMB | 40 | 1622264 | 0 |
| WM | 46 | 3533060 | 11 |
| AIG | 49 | 2451222 | 8 |
| Average | 43.25 | 2021323 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $2021 million. That figure was $1581 million in EQIX’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Air Products & Chemicals, Inc. (NYSE:APD) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Equinix Inc (NASDAQ:EQIX) is even less popular than APD. Hedge funds dodged a bullet by taking a bearish stance towards EQIX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EQIX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EQIX investors were disappointed as the stock returned -1.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
