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Hedge Funds Never Been This Bullish On Equity Residential (EQR)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Equity Residential (NYSE:EQR) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Equity Residential (NYSE:EQR) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EQR has seen an increase in hedge fund interest lately. There were 24 hedge funds in our database with EQR holdings at the end of March. Our calculations also showed that EQR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to analyze the recent hedge fund action regarding Equity Residential (NYSE:EQR).

How are hedge funds trading Equity Residential (NYSE:EQR)?

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards EQR over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Equity Residential (NYSE:EQR). D E Shaw has a $85 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $82.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include John Khoury’s Long Pond Capital, Ken Griffin’s Citadel Investment Group and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Long Pond Capital allocated the biggest weight to Equity Residential (NYSE:EQR), around 2.81% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, earmarking 2.3 percent of its 13F equity portfolio to EQR.

As industrywide interest jumped, key hedge funds have jumped into Equity Residential (NYSE:EQR) headfirst. Long Pond Capital, managed by John Khoury, assembled the biggest position in Equity Residential (NYSE:EQR). Long Pond Capital had $71.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $44.2 million position during the quarter. The other funds with brand new EQR positions are Greg Poole’s Echo Street Capital Management, Eduardo Abush’s Waterfront Capital Partners, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks similar to Equity Residential (NYSE:EQR). These stocks are AvalonBay Communities Inc (NYSE:AVB), Tyson Foods, Inc. (NYSE:TSN), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Align Technology, Inc. (NASDAQ:ALGN), Welltower Inc. (NYSE:WELL), and Sun Life Financial Inc. (NYSE:SLF). This group of stocks’ market values are similar to EQR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVB 34 1283293 4
TSN 37 649082 -4
TLK 4 166226 -3
CRWD 78 3277716 13
ALGN 41 1960739 2
WELL 27 655260 2
SLF 14 85306 -2
Average 33.6 1153946 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $1154 million. That figure was $555 million in EQR’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 4 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. Our overall hedge fund sentiment score for EQR is 59.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately EQR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EQR investors were disappointed as the stock returned -4% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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