Here is What Hedge Funds Think About Select Income REIT (SIR)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Ackman’s recent Valeant losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Select Income REIT (NYSE:SIR).

With a Price/Book ratio of 0.8 and a dividend yield of 7.75%, Select Income REIT (NYSE:SIR)’s stock is down by 21% since the beginning of the year. Moreover, the smart money is turning less bullish and the number of long hedge fund positions was trimmed by 2 recently. At the end of this article we will also compare SIR to other stocks, including Washington Real Estate Investment Trust (NYSE:WRE), Holly Energy Partners, L.P. (NYSE:HEP), and Tessera Technologies, Inc. (NASDAQ:TSRA) to get a better sense of its popularity.

In the financial world there are a lot of signals market participants have at their disposal to appraise their holdings. Two of the most innovative signals are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outclass the broader indices by a superb amount (see the details here).

Keeping this in mind, we’re going to go over the recent action surrounding Select Income REIT (NYSE:SIR).

Hedge fund activity in Select Income REIT (NYSE:SIR)

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, down by 13% on the quarter. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the number one position in Select Income REIT (NYSE:SIR). Echo Street Capital Management has a $33.8 million position in the stock, comprising 1.2% of its 13F portfolio. Coming in second is J. Alan Reid, Jr.’s Forward Management, with a $19 million position; 1.5% of its 13F portfolio is allocated to the stock. The remaining peers that hold long positions comprise Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, David Brown’s Hawk Ridge Management, and John Overdeck and David Siegel’s Two Sigma Advisors.

Since Select Income REIT (NYSE:SIR) has faced declining sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers that slashed their full holdings by the end of the third quarter. Interestingly, Chao Ku’s Nine Chapters Capital Management sold off the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $1.5 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Select Income REIT (NYSE:SIR) but similarly valued. We will take a look at Washington Real Estate Investment Trust (NYSE:WRE), Holly Energy Partners, L.P. (NYSE:HEP), Tessera Technologies, Inc. (NASDAQ:TSRA), and Korn/Ferry International (NYSE:KFY). This group of stocks’ market values match SIR’s market value.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $87 million in SIR’s case. Tessera Technologies, Inc. (NASDAQ:TSRA) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) and Holly Energy Partners, L.P. (NYSE:HEP) are the least popular ones with only 5 bullish hedge fund positions. Select Income REIT (NYSE:SIR) 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. In this regard TSRA might be a better candidate to consider a long position.