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Select Income REIT (SIR): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

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Select Income REIT (NYSE:SIR) investors should be aware of an increase in enthusiasm from smart money of late.

To most market participants, hedge funds are assumed to be unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open today, we hone in on the top tier of this group, around 450 funds. It is widely believed that this group oversees the lion’s share of the hedge fund industry’s total capital, and by watching their best stock picks, we have brought to light a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

David Shaw

Equally as integral, optimistic insider trading sentiment is a second way to parse down the world of equities. Obviously, there are lots of reasons for a corporate insider to get rid of shares of his or her company, but only one, very clear reason why they would buy. Plenty of empirical studies have demonstrated the valuable potential of this method if investors know where to look (learn more here).

Consequently, we’re going to take a peek at the recent action encompassing Select Income REIT (NYSE:SIR).

How are hedge funds trading Select Income REIT (NYSE:SIR)?

In preparation for this quarter, a total of 15 of the hedge funds we track were long in this stock, a change of 36% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly.

According to our comprehensive database, Anthony Bozza’s Lakewood Capital Management had the biggest position in Select Income REIT (NYSE:SIR), worth close to $38.8 million, comprising 2.6% of its total 13F portfolio. The second largest stake is held by Gruss Asset Management, managed by Howard Guberman, which held a $8.1 million position; 1.2% of its 13F portfolio is allocated to the company. Remaining hedgies that hold long positions include Greg Poole’s Echo Street Capital Management, D. E. Shaw’s D E Shaw and Richard Driehaus’s Driehaus Capital.

Consequently, specific money managers have jumped into Select Income REIT (NYSE:SIR) headfirst. Echo Street Capital Management, managed by Greg Poole, established the most outsized position in Select Income REIT (NYSE:SIR). Echo Street Capital Management had 7.3 million invested in the company at the end of the quarter. Christian Leone’s Luxor Capital Group also initiated a $2.6 million position during the quarter. The other funds with new positions in the stock are Steven Cohen’s SAC Capital Advisors, Louis Bacon’s Moore Global Investments, and Matthew Tewksbury’s Stevens Capital Management.

What have insiders been doing with Select Income REIT (NYSE:SIR)?

Insider trading activity, especially when it’s bullish, is at its handiest when the company in focus has seen transactions within the past six months. Over the last half-year time period, Select Income REIT (NYSE:SIR) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Select Income REIT (NYSE:SIR). These stocks are Government Properties Income Trust (NYSE:GOV), Parkway Properties Inc (NYSE:PKY), American Assets Trust, Inc (NYSE:AAT), Hudson Pacific Properties Inc (NYSE:HPP), and Franklin Street Properties Corp. (NYSEAMEX:FSP). This group of stocks are in the reit – office industry and their market caps match SIR’s market cap.

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