Nomadic Value Partners, a research and portfolio management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. In the letter, they talked about how the US equity market is undeniably overvalued, and is most probably in a ‘bubble’ territory. The fund also emphasized their ‘Nomadic’ approach, which they defined as a “thesis-driven investing”, that looks for positive, multi-year change within industries and also seek ways to competitively take market share and ultimately profit from it. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.
Nomadic Value Partners, in their Q4 2020 Investor Letter said that their new position in Equity Commonwealth (NYSE: EQC), partially reflects a long-term perspective post-COVID future where employees return to work in the center of the major cities. Equity Commonwealth is a real estate investment trust company that currently has a $3.4 billion market cap. For the past 3 months, EQC delivered a 6.67% return and settled at $28.13 per share at the closing of January 22nd.
Here is what Nomadic Value Partners has to say about Equity Commonwealth in their Investor Letter:
“In mid-December we initiated a position in Equity Commonwealth (EQC), an office REIT that owns only 4 properties, has no debt, and was trading close to the cash value on its balance sheet at the time of our purchase. COVID has turned office central business district real estate (office CBD) upside down as work-from-home has accelerated a suburbanization trend. In major metro markets, vacancy has increased to roughly 15% and subletting is at levels not seen since the tech bubble. Many feel this is only the beginning as COVID has forced most companies to rethink their overall office needs farther out than 2021.
A lack of price discovery has created a very challenging environment for investors. Transaction volume came to a halt this year and lease renewal terms are less meaningful due to an overwhelming number of short-term renewals. As a result, public REIT valuations are on an untethered space walk away from few private market comparables. To invest in a large public office REIT today, an investor must have a bullish view (or at least some view) on where lease rates ultimately settle. I would agree with predictions that lease rates bottom much lower than pre-COVID levels as we work through a capacity oversupply. But how much I’m not sure anyone knows. However, a long-term perspective sees a future post-COVID where employees return to work in the center of our major cities. Our new position in EQC partially reflects this view but nailing the bottom of lease rates and vacancy isn’t necessary in this case.
EQC sold over $6.9 billion of assets, repaid $3.2 billion in debt and preferred equity, distributed $734 million in dividends, and increased its cash balance by $2.6 billion. When including share price appreciation, EQC generated a 10% annualized total return over this liquidation period. Continuing into 2020, management sold three more properties at reasonable pre-COVID prices and distributed another $425 million in dividends.
We know they can sell but now the question is if they can buy. With real estate markets in disfunction, EQC should play offense. They are in a prime position with $3 billion of unencumbered cash and have even broadened their scope from office CBD to acquisitions of other real estate and/or real estate-related operating companies.”
Copyright: antoniodiaz / 123RF Stock Photo
Last October 2020, we published an article telling that Equity Commonwealth (NYSE: EQC) was in 23 hedge fund portfolios. Its all time high statistics is 28. EQC delivered a -13.29% return in the past 12 months.
Our calculations showed that Equity Commonwealth (NYSE: EQC) does not belong to the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website.
Disclosure: None. This article is originally published at Insider Monkey.
