Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Equity Residential (NYSE:EQR) has experienced an increase in support from the world's most elite money managers lately. Our calculations also showed that EQR isn't among the 30 most popular stocks among hedge funds. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the recent hedge fund action surrounding Equity Residential (NYSE:EQR).
Hedge fund activity in Equity Residential (NYSE:EQR)
At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EQR over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Equity Residential (NYSE:EQR), with a stake worth $56.1 million reported as of the end of March. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $51 million. Adage Capital Management, Millennium Management, and Land & Buildings Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds were leading the bulls' herd. Echo Street Capital Management, managed by Greg Poole, created the biggest position in Equity Residential (NYSE:EQR). Echo Street Capital Management had $13.8 million invested in the company at the end of the quarter. Daniel Johnson's Gillson Capital also made a $2.2 million investment in the stock during the quarter. The other funds with brand new EQR positions are Jeffrey Talpins's Element Capital Management, Mario Gabelli's GAMCO Investors, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks similar to Equity Residential (NYSE:EQR). We will take a look at AvalonBay Communities Inc (NYSE:AVB), ONEOK, Inc. (NYSE:OKE), Chunghwa Telecom Co., Ltd (NYSE:CHT), and The Hershey Company (NYSE:HSY). This group of stocks' market valuations resemble EQR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVB,21,662423,-5 OKE,21,380798,7 CHT,3,120183,-1 HSY,27,830810,5 Average,18,498554,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $223 million in EQR's case. The Hershey Company (NYSE:HSY) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 3 bullish hedge fund positions. Equity Residential (NYSE:EQR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on EQR as the stock returned 14.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.