Hedge Funds Are Losing Confidence in istar Inc (STAR)

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

istar Inc (NYSE:STAR) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. STAR was in 19 hedge funds’ portfolios at the end of the third quarter of 2015. There were 26 hedge funds in our database with STAR positions at the end of the previous quarter. At the end of this article we will also compare STAR to other stocks including Bankrate Inc (NYSE:RATE), Franklin Street Properties Corp. (NYSEAMEX:FSP), and Physicians Realty Trust (NYSE:DOC) to get a better sense of its popularity.

According to most shareholders, hedge funds are seen as slow, old investment vehicles of the past. While there are more than an 8,000 funds in operation today, we choose to focus on the top tier of this group, about 700 funds. Most estimates calculate that this group of people have their hands on the lion’s share of the hedge fund industry’s total capital, and by monitoring their matchless picks, Insider Monkey has deciphered various investment strategies that have historically defeated the market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, let’s take a glance at the recent action surrounding istar Inc (NYSE:STAR).

How have hedgies been trading istar Inc (NYSE:STAR)?

Heading into Q4, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 27% fall from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Robert Pitts’ Steadfast Capital Management has the number one position in istar Inc (NYSE:STAR), worth close to $61.3 million, corresponding to 1.2% of its total 13F portfolio. The second-most bullish fund manager is Valinor Management LLC, managed by David Gallo, which holds a $60.2 million position; 1.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish include Steve Pei’s Gratia Capital, Kenneth Tropin’s Graham Capital Management, and Robert Jaffe’s Force Capital.

Because istar Inc (NYSE:STAR) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their full holdings by the end of the third quarter. At the top of the heap, Michael Platt and William Reeves’ BlueCrest Capital Mgmt. said goodbye to the largest investment of all the hedgies watched by Insider Monkey, worth close to $13 million in stock. Geoffrey Raynor’s fund, Q Investments (Specter Holdings), also dumped its stock, about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 7 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to istar Inc (NYSE:STAR). We will take a look at Bankrate Inc (NYSE:RATE), Franklin Street Properties Corp. (NYSEAMEX:FSP), Physicians Realty Trust (NYSE:DOC), and Advanced Energy Industries, Inc. (NASDAQ:AEIS). This group of stocks’ market valuations match STAR’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $305 million in STAR’s case. Bankrate Inc (NYSE:RATE) is the most popular stock in this table. On the other hand Advanced Energy Industries, Inc. (NASDAQ:AEIS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks istar Inc (NYSE:STAR) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio, bearing in mind that a large volume of investors decided to move out of it recently.