Do Hedge Funds Love Equity Residential (EQR)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Equity Residential (NYSE:EQR)? The smart money sentiment can provide an answer to this question.

Is Equity Residential (NYSE:EQR) a safe investment today? The smart money is in a pessimistic mood. The number of long hedge fund positions that are disclosed in regulatory 13F filings dropped by 5 in recent months. In this way, there were 20 hedge funds in our database with EQR holdings at the end of the last quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Norfolk Southern Corp. (NYSE:NSC), Intuitive Surgical, Inc. (NASDAQ:ISRG), and NVIDIA Corporation (NASDAQ:NVDA) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about Equity Residential (NYSE:EQR)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 20% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in EQR heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Khoury’s Long Pond Capital has the number one position in Equity Residential (NYSE:EQR), worth close to $309.8 million, comprising 14.5% of its total 13F portfolio. The second largest stake is held by AEW Capital Management, led by Jeffrey Furber, which oversees a $260.4 million position; 5.4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism include Cliff Asness’ AQR Capital Management, and Phill Gross and Robert Atchinson’s Adage Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. At the top of the heap, D E Shaw, one of the biggest hedge funds in the world,cashed in the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $52.9 million in Equity Residential (NYSE:EQR) stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dropped about $12.7 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to Equity Residential (NYSE:EQR). We will take a look at Norfolk Southern Corp. (NYSE:NSC), Intuitive Surgical, Inc. (NASDAQ:ISRG), NVIDIA Corporation (NASDAQ:NVDA), and Spectra Energy Corp. (NYSE:SE). This group of stocks’ market caps match EQR’s market cap.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1.10 billion. That figure was $794 million in EQR’s case. NVIDIA Corporation (NASDAQ:NVDA) is the most popular stock in this table. On the other hand Spectra Energy Corp. (NYSE:SE) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Equity Residential (NYSE:EQR) is even less popular than SE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None