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Is Equity Commonwealth (EQC) Going to Burn These Hedge Funds?

Abigail Fisher
·6 mins read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Equity Commonwealth (NYSE:EQC) and determine whether the smart money was really smart about this stock.

Equity Commonwealth (NYSE:EQC) investors should be aware of an increase in activity from the world's largest hedge funds recently. Equity Commonwealth (NYSE:EQC) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistics is 28. Our calculations also showed that EQC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments
John Rogers Ariel Investments

John Rogers of Ariel Investments

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 to get excerpts of these letters in your inbox. Now let's take a gander at the latest hedge fund action regarding Equity Commonwealth (NYSE:EQC).

Hedge fund activity in Equity Commonwealth (NYSE:EQC)

At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EQC over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Equity Commonwealth (NYSE:EQC), with a stake worth $72.4 million reported as of the end of September. Trailing Renaissance Technologies was Hudson Way Capital Management, which amassed a stake valued at $38.6 million. Citadel Investment Group, Winton Capital Management, and Ariel Investments 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 13.49% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, designating 0.88 percent of its 13F equity portfolio to EQC.

As industrywide interest jumped, key money managers have been driving this bullishness. Intrinsic Edge Capital, managed by Mark Coe, initiated the biggest position in Equity Commonwealth (NYSE:EQC). Intrinsic Edge Capital had $2.9 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new EQC investors: Benjamin A. Smith's Laurion Capital Management, Mika Toikka's AlphaCrest Capital Management, and Michael Gelband's ExodusPoint Capital.

Let's now take a look at 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 ICL Group Ltd. (NYSE:ICL), Graphic Packaging Holding Company (NYSE:GPK), ChemoCentryx Inc (NASDAQ:CCXI), Amicus Therapeutics, Inc. (NASDAQ:FOLD), Highwoods Properties Inc (NYSE:HIW), QTS Realty Trust Inc (NYSE:QTS), and Telecom Argentina S.A. (NYSE:TEO). This group of stocks' market caps are similar to EQC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICL,5,6303,2 GPK,32,274367,-1 CCXI,31,701760,1 FOLD,32,1316185,4 HIW,30,142676,15 QTS,29,513230,8 TEO,3,33682,-1 Average,23.1,426886,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $215 million in EQC's case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 3 bullish hedge fund positions. Equity Commonwealth (NYSE:EQC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EQC is 67.1. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately EQC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EQC investors were disappointed as the stock returned -6.3% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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