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Were Hedge Funds Right About Equinix, Inc. (REIT) (EQIX) ?

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 thought Equinix, Inc. (REIT) (NASDAQ:EQIX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Equinix, Inc. (REIT) (NASDAQ:EQIX) a buy here? The best stock pickers were turning bullish. The number of long hedge fund positions improved by 12 recently. Our calculations also showed that EQIX 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.

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 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 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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 look at the fresh hedge fund action regarding Equinix, Inc. (REIT) (NASDAQ:EQIX).

What does smart money think about Equinix, Inc. (REIT) (NASDAQ:EQIX)?

At the end of the first quarter, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the fourth quarter of 2019. By comparison, 38 hedge funds held shares or bullish call options in EQIX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Equinix, Inc. (REIT) (NASDAQ:EQIX) was held by Alkeon Capital Management, which reported holding $237.4 million worth of stock at the end of September. It was followed by GQG Partners with a $222.1 million position. Other investors bullish on the company included Citadel Investment Group, Farallon Capital, and Zimmer Partners. In terms of the portfolio weights assigned to each position Caldera Capital allocated the biggest weight to Equinix, Inc. (REIT) (NASDAQ:EQIX), around 17.73% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, dishing out 10.4 percent of its 13F equity portfolio to EQIX.

Now, some big names were leading the bulls’ herd. GQG Partners, managed by Rajiv Jain, initiated the most outsized position in Equinix, Inc. (REIT) (NASDAQ:EQIX). GQG Partners had $222.1 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $50.2 million position during the quarter. The other funds with new positions in the stock are Josh Donfeld and David Rogers’s Castle Hook Partners, James Woodson Davis’s Woodson Capital Management, and Mark Coe’s Intrinsic Edge Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Equinix, Inc. (REIT) (NASDAQ:EQIX) but similarly valued. We will take a look at Advanced Micro Devices, Inc. (NASDAQ:AMD), The Goldman Sachs Group, Inc. (NYSE:GS), U.S. Bancorp (NYSE:USB), and Morgan Stanley (NYSE:MS). This group of stocks’ market valuations match EQIX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMD 62 2087092 9
GS 74 3084948 -1
USB 51 5625919 1
MS 70 3116102 10
Average 64.25 3478515 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.25 hedge funds with bullish positions and the average amount invested in these stocks was $3479 million. That figure was $1950 million in EQIX’s case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 51 bullish hedge fund positions. Equinix, Inc. (REIT) (NASDAQ:EQIX) 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. 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 surpassed the market by 15.5 percentage points. Unfortunately EQIX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EQIX investors were disappointed as the stock returned 12.9% during the second quarter 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.