Where Do Hedge Funds Stand On Equifax Inc. (EFX)?

At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not Equifax Inc. (NYSE:EFX) makes for a good investment right now.

Equifax Inc. (NYSE:EFX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds’ portfolios at the end of June. Our calculations also showed that EFX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AvalonBay Communities Inc (NYSE:AVB), Arthur J. Gallagher & Co. (NYSE:AJG), and Ameriprise Financial, Inc. (NYSE:AMP) to gather more data points.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David Blood of Generation Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. Now let’s analyze the new hedge fund action regarding Equifax Inc. (NYSE:EFX).

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

At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in EFX over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the biggest position in Equifax Inc. (NYSE:EFX). Generation Investment Management has a $1.1243 billion position in the stock, comprising 4.7% of its 13F portfolio. On Generation Investment Management’s heels is Cantillon Capital Management, led by William von Mueffling, holding a $518.7 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Nicolai Tangen’s Ako Capital, Greg Poole’s Echo Street Capital Management and Terry Smith’s Fundsmith LLP. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to Equifax Inc. (NYSE:EFX), around 4.66% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, setting aside 3.68 percent of its 13F equity portfolio to EFX.

Judging by the fact that Equifax Inc. (NYSE:EFX) has experienced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes in the second quarter. Intriguingly, Martin O’hare and Marcus Strub’s Fosse Capital Partners said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, comprising close to $31.8 million in stock. Cliff Asness’s fund, AQR Capital Management, also dropped its stock, about $2.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Equifax Inc. (NYSE:EFX) but similarly valued. These stocks are AvalonBay Communities Inc (NYSE:AVB), Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), EPAM Systems Inc (NYSE:EPAM), Best Buy Co., Inc. (NYSE:BBY), Equity Residential (NYSE:EQR), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks’ market caps match EFX’s market cap.

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As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $971 million. That figure was $3075 million in EFX’s case. Arthur J. Gallagher & Co. (NYSE:AJG) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 26 bullish hedge fund positions. Equifax Inc. (NYSE:EFX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EFX is 70.7. 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. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on EFX as the stock returned 7.7% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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