We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Spirit Realty Capital Inc (NYSE:SRC).
Spirit Realty Capital Inc (NYSE:SRC) was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. SRC investors should be aware of a decrease in activity from the world’s largest hedge funds lately. There were 23 hedge funds in our database with SRC holdings at the end of the previous quarter. Our calculations also showed that SRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Steven Tananbaum of GoldenTree Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the fresh hedge fund action regarding Spirit Realty Capital Inc (NYSE:SRC).
Hedge fund activity in Spirit Realty Capital Inc (NYSE:SRC)
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in SRC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Spirit Realty Capital Inc (NYSE:SRC), with a stake worth $49.8 million reported as of the end of September. Trailing Citadel Investment Group was Echo Street Capital Management, which amassed a stake valued at $27 million. Highland Capital Management, GoldenTree Asset Management, and Renaissance Technologies 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 GoldenTree Asset Management allocated the biggest weight to Spirit Realty Capital Inc (NYSE:SRC), around 1.62% of its 13F portfolio. Brant Point Investment Management is also relatively very bullish on the stock, dishing out 1.08 percent of its 13F equity portfolio to SRC.
Since Spirit Realty Capital Inc (NYSE:SRC) has experienced declining sentiment from the smart money, we can see that there is a sect of funds who were dropping their positions entirely last quarter. At the top of the heap, Matt Sirovich and Jeremy Mindich’s Scopia Capital cut the largest investment of all the hedgies watched by Insider Monkey, valued at close to $115 million in stock, and John Khoury’s Long Pond Capital was right behind this move, as the fund said goodbye to about $77.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 5 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Spirit Realty Capital Inc (NYSE:SRC) but similarly valued. We will take a look at Clean Harbors Inc (NYSE:CLH), Qurate Retail, Inc. (NASDAQ:QRTEA), The Stars Group Inc. (NASDAQ:TSG), and Ritchie Bros. Auctioneers Incorporated (NYSE:RBA). This group of stocks’ market valuations are similar to SRC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLH | 26 | 388088 | -1 |
| QRTEA | 32 | 735658 | -1 |
| TSG | 34 | 717299 | -4 |
| RBA | 13 | 185553 | 1 |
| Average | 26.25 | 506650 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $507 million. That figure was $147 million in SRC’s case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 13 bullish hedge fund positions. Spirit Realty Capital Inc (NYSE:SRC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SRC, though not to the same extent, as the stock returned 9.5% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
