Is Government Properties Income Trust (GOV) Going to Burn These Hedge Funds?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. 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 Government Properties Income Trust (NYSE:GOV).

Government Properties Income Trust (NYSE:GOV) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Pennsylvania R.E.I.T. (NYSE:PEI), WD-40 Company (NASDAQ:WDFC), and Portfolio Recovery Associates, Inc. (NASDAQ:PRAA) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s take a glance at the fresh action encompassing Government Properties Income Trust (NASDAQ:GOV).

Hedge fund activity in Government Properties Income Trust (NASDAQ:GOV)

Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. By comparison, 4 hedge funds held shares or bullish call options in GOV heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Huber Capital Management, led by Joe Huber, holds the number one position in Government Properties Income Trust (NASDAQ:GOV). According to regulatory filings, the fund has a $62.7 million position in the stock, comprising 2.5% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, one of the largest hedge funds in the world, holding a $23.1 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism encompass Cliff Asness’s AQR Capital Management, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on Government Properties Income Trust (NASDAQ:GOV) and some hedge funds actually cashed in their positions entirely. Intriguingly, D. E. Shaw’s D E Shaw cashed in the biggest investment of the 700 funds watched by Insider Monkey, comprising close to $1.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its call options, about $0.2 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Government Properties Income Trust (NASDAQ:GOV) but similarly valued. We will take a look at Pennsylvania R.E.I.T. (NYSE:PEI), WD-40 Company (NASDAQ:WDFC), Portfolio Recovery Associates, Inc. (NASDAQ:PRAA), and Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV). This group of stocks’ market valuations resemble GOV’s market valuation.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $90 million in GOV’s case. Pennsylvania R.E.I.T. (NYSE:PEI) is the most popular stock in this table. On the other hand Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV) is the least popular one with only 3 bullish hedge fund positions. Government Properties Income Trust (NASDAQ:GOV) 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 PEI might be a better candidate to consider taking a long position in.

Disclosure: none.