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Were Hedge Funds Right About Souring On EQT Corporation (EQT)?

Reymerlyn Martin

During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of EQT Corporation (NYSE:EQT) and see how the stock is affected by the recent hedge fund activity.

Is EQT Corporation (NYSE:EQT) a healthy stock for your portfolio? Investors who are in the know are selling. The number of bullish hedge fund bets decreased by 1 recently. Our calculations also showed that EQT isn't among the 30 most popular stocks among hedge funds. EQT was in 44 hedge funds' portfolios at the end of December. There were 45 hedge funds in our database with EQT positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Singer ELLIOTT MANAGEMENT

We're going to take a look at the recent hedge fund action regarding EQT Corporation (NYSE:EQT).

Hedge fund activity in EQT Corporation (NYSE:EQT)

At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EQT over the last 14 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

EQT_apr2019

More specifically, D E Shaw was the largest shareholder of EQT Corporation (NYSE:EQT), with a stake worth $216.7 million reported as of the end of September. Trailing D E Shaw was Kensico Capital, which amassed a stake valued at $181.7 million. Millennium Management, Canyon Capital Advisors, and Elliott Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that EQT Corporation (NYSE:EQT) has experienced bearish sentiment from the smart money, it's safe to say that there were a few fund managers who were dropping their positions entirely by the end of the third quarter. Interestingly, Matt Sirovich and Jeremy Mindich's Scopia Capital sold off the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $105 million in stock, and Kenneth Mario Garschina's Mason Capital Management was right behind this move, as the fund sold off about $67.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as EQT Corporation (NYSE:EQT) but similarly valued. We will take a look at Owens Corning (NYSE:OC), Zscaler, Inc. (NASDAQ:ZS), Toll Brothers Inc (NYSE:TOL), and WPX Energy Inc (NYSE:WPX). This group of stocks' market values match EQT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OC,40,838801,8 ZS,17,91542,-11 TOL,28,444730,-4 WPX,46,727535,-7 Average,32.75,525652,-3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $1317 million in EQT's case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 17 bullish hedge fund positions. EQT Corporation (NYSE:EQT) 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 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately EQT wasn't nearly as popular as these 15 stock and hedge funds that were betting on EQT were disappointed as the stock returned 11.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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