Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Equity Commonwealth (NYSE:EQC) investors should be aware of an increase in enthusiasm from smart money of late. Our calculations also showed that EQC 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
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. Let’s take a look at the recent hedge fund action surrounding Equity Commonwealth (NYSE:EQC).
What have hedge funds been doing with Equity Commonwealth (NYSE:EQC)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in EQC 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.
Among these funds, Renaissance Technologies held the most valuable stake in Equity Commonwealth (NYSE:EQC), which was worth $44.3 million at the end of the third quarter. On the second spot was Hudson Way Capital Management which amassed $30.9 million worth of shares. Arrowstreet Capital, D E Shaw, and Cove Street Capital 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 13.66% of its portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 2.07 percent of its 13F equity portfolio to EQC.
As aggregate interest increased, some big names were breaking ground themselves. Forward Management, managed by J. Alan Reid, Jr., established the biggest position in Equity Commonwealth (NYSE:EQC). Forward Management had $1.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.9 million investment in the stock during the quarter. The other funds with brand new EQC positions are Paul Marshall and Ian Wace’s Marshall Wace, Joel Greenblatt’s Gotham Asset Management, and Bruce Kovner’s Caxton Associates.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Equity Commonwealth (NYSE:EQC) but similarly valued. We will take a look at Copa Holdings, S.A. (NYSE:CPA), RLI Corp. (NYSE:RLI), PNM Resources, Inc. (NYSE:PNM), and The Brink’s Company (NYSE:BCO). This group of stocks’ market caps match EQC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPA | 18 | 284351 | 2 |
| RLI | 14 | 184377 | -1 |
| PNM | 14 | 413235 | 1 |
| BCO | 20 | 515286 | -7 |
| Average | 16.5 | 349312 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $349 million. That figure was $179 million in EQC’s case. The Brink’s Company (NYSE:BCO) is the most popular stock in this table. On the other hand RLI Corp. (NYSE:RLI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Equity Commonwealth (NYSE:EQC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on EQC, though not to the same extent, as the stock returned 6.8% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
