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 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. 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 Equinix Inc (NASDAQ:EQIX).
Is Equinix Inc (NASDAQ:EQIX) a buy, sell, or hold? Prominent investors are turning bullish. The number of bullish hedge fund positions inched up by 1 in recent months. Our calculations also showed that EQIX isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to review the recent hedge fund action regarding Equinix Inc (NASDAQ:EQIX).
What have hedge funds been doing with Equinix Inc (NASDAQ:EQIX)?
At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in EQIX over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Farallon Capital held the most valuable stake in Equinix Inc (NASDAQ:EQIX), which was worth $391.7 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $168 million worth of shares. Moreover, SPO Advisory Corp, Rivulet Capital, and Citadel Investment Group were also bullish on Equinix Inc (NASDAQ:EQIX), allocating a large percentage of their portfolios to this stock.
Now, key money managers were leading the bulls' herd. Holocene Advisors, managed by Brandon Haley, initiated the most outsized position in Equinix Inc (NASDAQ:EQIX). Holocene Advisors had $53 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $15.4 million position during the quarter. The other funds with brand new EQIX positions are Paul Tudor Jones's Tudor Investment Corp, Dan Sobol and Lisa Hess's SkyTop Capital Management, and Jeffrey Talpins's Element Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Equinix Inc (NASDAQ:EQIX) but similarly valued. These stocks are Fiat Chrysler Automobiles NV (NYSE:FCAU), V.F. Corporation (NYSE:VFC), Autodesk, Inc. (NASDAQ:ADSK), and Manulife Financial Corporation (NYSE:MFC). This group of stocks' market valuations match EQIX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCAU,34,2240973,1 VFC,27,772231,-5 ADSK,59,3086673,-7 MFC,20,285853,-1 Average,35,1596433,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1596 million. That figure was $1698 million in EQIX's case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. Equinix Inc (NASDAQ:EQIX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on EQIX as the stock returned 26% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.