We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Spirit Realty Capital Inc (NYSE:SRC) was in 23 hedge funds’ portfolios at the end of the second quarter of 2019. SRC has experienced an increase in support from the world’s most elite money managers in recent months. There were 17 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 (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the new hedge fund action encompassing Spirit Realty Capital Inc (NYSE:SRC).
How are hedge funds trading Spirit Realty Capital Inc (NYSE:SRC)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in SRC a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Scopia Capital held the most valuable stake in Spirit Realty Capital Inc (NYSE:SRC), which was worth $115 million at the end of the second quarter. On the second spot was Long Pond Capital which amassed $77.3 million worth of shares. Moreover, Renaissance Technologies, Citadel Investment Group, and Echo Street Capital Management were also bullish on Spirit Realty Capital Inc (NYSE:SRC), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, some big names were leading the bulls’ herd. Millennium Management, managed by Israel Englander, assembled the biggest position in Spirit Realty Capital Inc (NYSE:SRC). Millennium Management had $24.6 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also made a $23.3 million investment in the stock during the quarter. The other funds with brand new SRC positions are Clint Carlson’s Carlson Capital, Ira Unschuld’s Brant Point Investment Management, and Daniel Johnson’s Gillson Capital.
Let’s go over hedge fund activity in other stocks similar to Spirit Realty Capital Inc (NYSE:SRC). We will take a look at Ita? CorpBanca (NYSE:ITCB), Gold Fields Limited (NYSE:GFI), J2 Global Inc (NASDAQ:JCOM), and Eastgroup Properties Inc (NYSE:EGP). This group of stocks’ market values are similar to SRC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITCB | 1 | 4019 | 0 |
| GFI | 14 | 209608 | 4 |
| JCOM | 24 | 309368 | 2 |
| EGP | 12 | 83709 | 5 |
| Average | 12.75 | 151676 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $429 million in SRC’s case. J2 Global Inc (NASDAQ:JCOM) is the most popular stock in this table. On the other hand Ita? CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Spirit Realty Capital Inc (NYSE:SRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SRC as the stock returned 13.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
