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Were Hedge Funds Right About Piling Into Equinix Inc (EQIX)?

Is Equinix Inc (NASDAQ:EQIX) a buy, sell, or hold? Prominent investors are turning bullish. The number of bullish hedge fund positions inched up by 1 in recent months. Our calculations also showed that EQIX isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

TUDOR INVESTMENT CORP

We’re going to review the recent hedge fund action regarding Equinix Inc (NASDAQ:EQIX).

What have hedge funds been doing with Equinix Inc (NASDAQ:EQIX)?

At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in EQIX over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EQIX_mar2019

Among these funds, Farallon Capital held the most valuable stake in Equinix Inc (NASDAQ:EQIX), which was worth $391.7 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $168 million worth of shares. Moreover, SPO Advisory Corp, Rivulet Capital, and Citadel Investment Group were also bullish on Equinix Inc (NASDAQ:EQIX), allocating a large percentage of their portfolios to this stock.

Now, key money managers were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, initiated the most outsized position in Equinix Inc (NASDAQ:EQIX). Holocene Advisors had $53 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $15.4 million position during the quarter. The other funds with brand new EQIX positions are Paul Tudor Jones’s Tudor Investment Corp, Dan Sobol and Lisa Hess’s SkyTop Capital Management, and Jeffrey Talpins’s Element Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Equinix Inc (NASDAQ:EQIX) but similarly valued. These stocks are Fiat Chrysler Automobiles NV (NYSE:FCAU), V.F. Corporation (NYSE:VFC), Autodesk, Inc. (NASDAQ:ADSK), and Manulife Financial Corporation (NYSE:MFC). 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
FCAU 34 2240973 1
VFC 27 772231 -5
ADSK 59 3086673 -7
MFC 20 285853 -1
Average 35 1596433 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1596 million. That figure was $1698 million in EQIX’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. Equinix Inc (NASDAQ:EQIX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on EQIX as the stock returned 26% and outperformed the market as well.

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

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