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Do Hedge Funds Love Equity Residential (EQR)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Equity Residential (NYSE:EQR) the right investment to pursue these days? Investors who are in the know are taking a bearish view. The number of bullish hedge fund bets dropped by 1 recently. Our calculations also showed that EQR isn’t among the 30 most popular stocks among hedge funds. EQR was in 23 hedge funds’ portfolios at the end of the third quarter of 2018. There were 24 hedge funds in our database with EQR positions at the end of the previous quarter.

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 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Let’s take a look at the new hedge fund action regarding Equity Residential (NYSE:EQR).

Hedge fund activity in Equity Residential (NYSE:EQR)

Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards EQR over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EQR_dec2018

The largest stake in Equity Residential (NYSE:EQR) was held by AEW Capital Management, which reported holding $111.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $95.6 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Balyasny Asset Management.

Due to the fact that Equity Residential (NYSE:EQR) has witnessed falling interest from hedge fund managers, we can see that there exists a select few hedgies that decided to sell off their positions entirely in the third quarter. Intriguingly, Alec Litowitz and Ross Laser’s Magnetar Capital dropped the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $1.5 million in call options, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund cut about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Equity Residential (NYSE:EQR) but similarly valued. These stocks are Brown-Forman Corporation (NYSE:BF), Parker-Hannifin Corporation (NYSE:PH), Sasol Limited (NYSE:SSL), and United Continental Holdings Inc (NASDAQ:UAL). All of these stocks’ market caps match EQR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BF 22 725377 3
PH 27 824113 1
SSL 7 53180 1
UAL 43 7044436 1
Average 24.75 2161777 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.16 billion. That figure was $433 million in EQR’s case. United Continental Holdings Inc (NASDAQ:UAL) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 7 bullish hedge fund positions. Equity Residential (NYSE:EQR) 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. In this regard UAL might be a better candidate to consider a long position.

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

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