We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 835 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 December 31st. In this article we look at what those investors think of Equity Residential (NYSE:EQR).
Equity Residential (NYSE:EQR) has seen an increase in hedge fund sentiment of late. EQR was in 30 hedge funds' portfolios at the end of December. There were 26 hedge funds in our database with EQR positions at the end of the previous quarter. Our calculations also showed that EQR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_340081" align="aligncenter" width="399"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to go over the recent hedge fund action surrounding Equity Residential (NYSE:EQR).
Hedge fund activity in Equity Residential (NYSE:EQR)
Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in EQR a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Equity Residential (NYSE:EQR), which was worth $65.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $62 million worth of shares. D E Shaw, Adage Capital Management, and Citadel Investment Group 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 Land & Buildings Investment Management allocated the biggest weight to Equity Residential (NYSE:EQR), around 2.09% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 0.57 percent of its 13F equity portfolio to EQR.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the largest position in Equity Residential (NYSE:EQR). Renaissance Technologies had $65.8 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also made a $18.9 million investment in the stock during the quarter. The following funds were also among the new EQR investors: Paul Tudor Jones's Tudor Investment Corp, Daniel S. Och's OZ Management, and Matthew Tewksbury's Stevens Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Equity Residential (NYSE:EQR) but similarly valued. These stocks are TransDigm Group Incorporated (NYSE:TDG), IQVIA Holdings, Inc. (NYSE:IQV), Public Service Enterprise Group Incorporated (NYSE:PEG), and HP Inc. (NYSE:HPQ). This group of stocks' market values are similar to EQR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDG,63,5538787,3 IQV,64,3822679,-4 PEG,31,987064,11 HPQ,49,2547120,8 Average,51.75,3223913,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 51.75 hedge funds with bullish positions and the average amount invested in these stocks was $3224 million. That figure was $309 million in EQR's case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand Public Service Enterprise Group Incorporated (NYSE:PEG) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Equity Residential (NYSE:EQR) is even less popular than PEG. Hedge funds clearly dropped the ball on EQR as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on EQR as the stock returned -7.2% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.