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Here is What Hedge Funds Think About Spirit Realty Capital Inc (SRC)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Spirit Realty Capital Inc (NYSE:SRC) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Spirit Realty Capital Inc (NYSE:SRC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that SRC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare SRC to other stocks including United Bankshares, Inc. (NASDAQ:UBSI), Equitrans Midstream Corporation (NYSE:ETRN), and Valvoline Inc. (NYSE:VVV) to get a better sense of its popularity.

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

At the moment there are dozens of gauges market participants use to size up their holdings. A couple of the less known gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top money managers can outclass the S&P 500 by a very impressive amount (see the details here).

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Spirit Realty Capital Inc (NYSE:SRC).

Hedge fund activity in Spirit Realty Capital Inc (NYSE:SRC)

At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in SRC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings 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 $74.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $21.4 million position. Other investors bullish on the company included MSDC Management, Balyasny Asset Management, and Gillson Capital. In terms of the portfolio weights assigned to each position MSDC Management allocated the biggest weight to Spirit Realty Capital Inc (NYSE:SRC), around 5.05% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, earmarking 1.47 percent of its 13F equity portfolio to SRC.

Judging by the fact that Spirit Realty Capital Inc (NYSE:SRC) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few money managers that slashed their full holdings last quarter. At the top of the heap, Eduardo Abush’s Waterfront Capital Partners dropped the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $9.8 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out 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 United Bankshares, Inc. (NASDAQ:UBSI), Equitrans Midstream Corporation (NYSE:ETRN), Valvoline Inc. (NYSE:VVV), WPX Energy Inc (NYSE:WPX), Terreno Realty Corporation (NYSE:TRNO), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Medallia, Inc. (NYSE:MDLA). This group of stocks’ market valuations match SRC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UBSI 16 44023 3
ETRN 29 465675 10
VVV 40 634494 1
WPX 37 230770 8
TRNO 9 29693 -1
ARNA 41 814569 5
MDLA 18 257841 -2
Average 27.1 353866 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $155 million in SRC’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 9 bullish hedge fund positions. Spirit Realty Capital Inc (NYSE:SRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SRC is 33.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately SRC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SRC investors were disappointed as the stock returned -1.4% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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