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Did Hedge Funds Make The Right Call On Spirit Realty Capital Inc (SRC) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Spirit Realty Capital Inc (NYSE:SRC) based on that data and determine whether they were really smart about the stock.

Is Spirit Realty Capital Inc (NYSE:SRC) a buy right now? Prominent investors were reducing their bets on the stock. The number of long hedge fund positions dropped by 8 in recent months. Our calculations also showed that SRC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SRC was in 18 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with SRC positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a look at the latest hedge fund action encompassing Spirit Realty Capital Inc (NYSE:SRC).

What does smart money think about Spirit Realty Capital Inc (NYSE:SRC)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the fourth quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in SRC a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Spirit Realty Capital Inc (NYSE:SRC) was held by Citadel Investment Group, which reported holding $32.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $17 million position. Other investors bullish on the company included Waterfront Capital Partners, Winton Capital Management, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Spirit Realty Capital Inc (NYSE:SRC), around 1.2% of its 13F portfolio. MSDC Management is also relatively very bullish on the stock, dishing out 0.71 percent of its 13F equity portfolio to SRC.

Seeing as Spirit Realty Capital Inc (NYSE:SRC) has faced falling interest from hedge fund managers, logic holds that there exists a select few money managers that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Greg Poole’s Echo Street Capital Management said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, worth an estimated $28.7 million in stock, and Ira Unschuld’s Brant Point Investment Management was right behind this move, as the fund cut about $14 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 8 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Spirit Realty Capital Inc (NYSE:SRC). These stocks are Medallia, Inc. (NYSE:MDLA), PVH Corp (NYSE:PVH), Cannae Holdings, Inc. (NYSE:CNNE), and Devon Energy Corporation (NYSE:DVN). This group of stocks’ market values resemble SRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDLA 20 237596 -2
PVH 18 346896 -11
CNNE 20 240727 -11
DVN 42 222790 -12
Average 25 262002 -9

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $262 million. That figure was $76 million in SRC’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand PVH Corp (NYSE:PVH) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Spirit Realty Capital Inc (NYSE:SRC) is even less popular than PVH. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SRC, though not to the same extent, as the stock returned 30.6% since the end of March and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.