It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Equity Commonwealth (NYSE:EQC).
Equity Commonwealth (NYSE:EQC) was in 21 hedge funds' portfolios at the end of the first quarter of 2019. EQC investors should be aware of an increase in hedge fund interest in recent months. There were 17 hedge funds in our database with EQC holdings at the end of the previous quarter. Our calculations also showed that eqc isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Let's analyze the fresh hedge fund action surrounding Equity Commonwealth (NYSE:EQC).
What does the smart money think about Equity Commonwealth (NYSE:EQC)?
At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in EQC a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Equity Commonwealth (NYSE:EQC) was held by Renaissance Technologies, which reported holding $73.9 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $45.8 million position. Other investors bullish on the company included Hudson Way Capital Management, D E Shaw, and Cove Street Capital.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the biggest position in Equity Commonwealth (NYSE:EQC). Citadel Investment Group had $2.4 million invested in the company at the end of the quarter. Murray Stahl's Horizon Asset Management also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Noam Gottesman's GLG Partners, David Harding's Winton Capital Management, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Equity Commonwealth (NYSE:EQC) but similarly valued. These stocks are Nomad Foods Limited (NYSE:NOMD), Plains GP Holdings LP (NYSE:PAGP), Sterling Bancorp (NYSE:STL), and United States Cellular Corporation (NYSE:USM). All of these stocks' market caps are closest to EQC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOMD,42,518787,11 PAGP,16,223677,-2 STL,19,469202,1 USM,14,183392,-3 Average,22.75,348765,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $349 million. That figure was $217 million in EQC's case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand United States Cellular Corporation (NYSE:USM) is the least popular one with only 14 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. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EQC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EQC investors were disappointed as the stock returned -1.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.