Were Hedge Funds Right About Avoiding Equifax Inc. (EFX)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtEquifax Inc. (NYSE:EFX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Equifax Inc. (NYSE:EFX) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Fox Corporation (NASDAQ:FOXA), Vulcan Materials Company (NYSE:VMC), and Boston Properties, Inc. (NYSE:BXP) to gather more data points. Our calculations also showed that EFX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the latest hedge fund action regarding Equifax Inc. (NYSE:EFX).

Hedge fund activity in Equifax Inc. (NYSE:EFX)

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in EFX a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Lone Pine Capital held the most valuable stake in Equifax Inc. (NYSE:EFX), which was worth $378.8 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $274.1 million worth of shares. Generation Investment Management, Melvin Capital Management, and Echo Street Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Harbor Spring Capital allocated the biggest weight to Equifax Inc. (NYSE:EFX), around 4.04% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, earmarking 3.03 percent of its 13F equity portfolio to EFX.

Judging by the fact that Equifax Inc. (NYSE:EFX) has faced falling interest from the smart money, we can see that there exists a select few fund managers that slashed their entire stakes by the end of the first quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital sold off the biggest investment of the 750 funds watched by Insider Monkey, worth an estimated $62 million in stock. John Brennan’s fund, Sirios Capital Management, also dropped its stock, about $27.1 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Equifax Inc. (NYSE:EFX) but similarly valued. We will take a look at Fox Corporation (NASDAQ:FOXA), Vulcan Materials Company (NYSE:VMC), Boston Properties, Inc. (NYSE:BXP), and Garmin Ltd. (NASDAQ:GRMN). This group of stocks’ market caps resemble EFX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOXA 38 1563564 1
VMC 49 1119317 -3
BXP 29 185266 9
GRMN 27 394058 1
Average 35.75 815551 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $816 million. That figure was $1301 million in EFX’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Garmin Ltd. (NASDAQ:GRMN) is the least popular one with only 27 bullish hedge fund positions. Equifax Inc. (NYSE:EFX) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on EFX as the stock returned 44.3% during the second quarter and outperformed the market by an even larger margin.

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