Were Hedge Funds Right About Dumping Equifax Inc. (EFX)?
Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Equifax Inc. (NYSE:EFX).
Equifax Inc. (NYSE:EFX) has experienced a decrease in hedge fund interest of late. Our calculations also showed that EFX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_364853" align="aligncenter" width="594"]
William Von Mueffling of Cantillon Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the latest hedge fund action encompassing Equifax Inc. (NYSE:EFX).
Hedge fund activity in Equifax Inc. (NYSE:EFX)
At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EFX over the last 17 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, Lone Pine Capital was the largest shareholder of Equifax Inc. (NYSE:EFX), with a stake worth $431.7 million reported as of the end of September. Trailing Lone Pine Capital was Cantillon Capital Management, which amassed a stake valued at $330.4 million. Generation Investment Management, Egerton Capital Limited, and Farallon Capital 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 Clearfield Capital allocated the biggest weight to Equifax Inc. (NYSE:EFX), around 13.05% of its portfolio. Harbor Spring Capital is also relatively very bullish on the stock, earmarking 4.54 percent of its 13F equity portfolio to EFX.
Seeing as Equifax Inc. (NYSE:EFX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies who were dropping their positions entirely by the end of the third quarter. At the top of the heap, James Parsons's Junto Capital Management dropped the biggest position of the 750 funds followed by Insider Monkey, worth an estimated $78.1 million in stock. Clint Carlson's fund, Carlson Capital, also cut its stock, about $10.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Equifax Inc. (NYSE:EFX) but similarly valued. We will take a look at DISH Network Corporation (NASDAQ:DISH), HEICO Corporation (NYSE:HEI), ZTO Express (Cayman) Inc. (NYSE:ZTO), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). All of these stocks' market caps are similar to EFX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DISH,36,1531248,4 HEI,42,1148598,7 ZTO,19,505301,4 CHKP,20,407935,-4 Average,29.25,898271,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $898 million. That figure was $1729 million in EFX's case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 19 bullish hedge fund positions. Equifax Inc. (NYSE:EFX) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EFX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EFX investors were disappointed as the stock returned -0.5% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
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