Hedge Funds Aren’t Crazy About Spirit Realty Capital Inc (SRC) Anymore

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Spirit Realty Capital Inc (NYSE:SRC).

Spirit Realty Capital Inc (NYSE:SRC) was in 18 hedge funds’ portfolios at the end of March. SRC investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 26 hedge funds in our database with SRC positions at the end of the previous quarter. 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).

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

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the latest hedge fund action surrounding Spirit Realty Capital Inc (NYSE:SRC).

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

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in SRC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is SRC A Good Stock To Buy?

Among these funds, Citadel Investment Group held the most valuable stake in Spirit Realty Capital Inc (NYSE:SRC), which was worth $32.5 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $17 million worth of shares. Waterfront Capital Partners, Winton Capital Management, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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.

Due to the fact that Spirit Realty Capital Inc (NYSE:SRC) has faced a decline in interest from the smart money, it’s easy to see that there was a specific group of hedge funds who sold off their positions entirely in the first quarter. Interestingly, Greg Poole’s Echo Street Capital Management dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, worth about $28.7 million in stock, and Ira Unschuld’s Brant Point Investment Management was right behind this move, as the fund dumped about $14 million worth. These transactions are interesting, as total hedge fund interest fell by 8 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Spirit Realty Capital Inc (NYSE:SRC) but similarly valued. We will take a look at Medallia, Inc. (NYSE:MDLA), PVH Corp (NYSE:PVH), Cannae Holdings, Inc. (NYSE:CNNE), and Devon Energy Corporation (NYSE:DVN). All of these stocks’ market caps resemble SRC’s market cap.

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. Hedge funds clearly dropped the ball on SRC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on SRC as the stock returned 37% so far in the second quarter and outperformed the market by an even larger margin.

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