At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Select Income REIT (NYSE:SIR) worth your attention right now? The best stock pickers are getting more bullish. The number of long hedge fund positions increased by 5 lately. Our calculations also showed that sir isn’t among the 30 most popular stocks among hedge funds.
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’ 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 18 percentage points since May 2014 through December 3, 2018 (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.
Cliff Asness of AQR Capital Management
Let’s take a look at the new hedge fund action surrounding Select Income REIT (NYSE:SIR).
How are hedge funds trading Select Income REIT (NYSE:SIR)?
Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SIR over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Manikay Partners held the most valuable stake in Select Income REIT (NYSE:SIR), which was worth $24.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $13 million worth of shares. Moreover, Magnetar Capital, Highland Capital Management, and AQR Capital Management were also bullish on Select Income REIT (NYSE:SIR), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were breaking ground themselves. Manikay Partners, managed by Shane Finemore, initiated the largest position in Select Income REIT (NYSE:SIR). Manikay Partners had $24.2 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $11.2 million investment in the stock during the quarter. The other funds with new positions in the stock are James Dondero’s Highland Capital Management, Jeffrey Pierce’s Snow Park Capital Partners, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Select Income REIT (NASDAQ:SIR) but similarly valued. These stocks are Stepan Company (NYSE:SCL), American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Ferro Corporation (NYSE:FOE), and Franks International NV (NYSE:FI). This group of stocks’ market valuations are similar to SIR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCL | 10 | 48107 | 0 |
| AXL | 25 | 230897 | -2 |
| FOE | 18 | 291059 | 3 |
| FI | 11 | 39270 | 6 |
| Average | 16 | 152333 | 1.75 |
View table here if you experience formatting issues.
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 $152 million. That figure was $64 million in SIR’s case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand Stepan Company (NYSE:SCL) is the least popular one with only 10 bullish hedge fund positions. Select Income REIT (NASDAQ:SIR) 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. In this regard AXL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
