Is Government Properties Income Trust (GOV) A Good Stock To Buy?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25th and October 30th. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Government Properties Income Trust (NYSE:GOV).

Is Government Properties Income Trust (NYSE:GOV) a buy, sell, or hold? Money managers are getting less optimistic. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience. At the end of this article, we will also compare Government Properties Income Trust (NYSE:GOV) to other stocks including WestAmerica Bancorp. (NASDAQ:WABC), Viper Energy Partners LP (NASDAQ:VNOM), and S & T Bancorp Inc (NASDAQ:STBA) to get a better sense of its popularity.

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In the eyes of most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, our experts hone in on the crème de la crème of this club, approximately 700 funds. It is estimated that this group of investors control most of the hedge fund industry’s total asset base, and by tracking their inimitable stock picks, Insider Monkey has unsheathed a few investment strategies that have historically exceeded the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, we’re going to take a peek at the new action regarding Government Properties Income Trust (NYSE:GOV).

What have hedge funds been doing with Government Properties Income Trust (NYSE:GOV)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish in this stock, flat over the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

When looking at the hedgies followed by Insider Monkey, Huber Capital Management, managed by Joe Huber, holds the largest position in Government Properties Income Trust (NYSE:GOV). Huber Capital Management has a $49.5 million position in the stock, comprising 1.7% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $5.3 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise D E Shaw, Ken Griffin’s Citadel Investment Group and Chao Ku’s Nine Chapters Capital Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Government Properties Income Trust (NYSE:GOV) but similarly valued. These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Viper Energy Partners LP (NASDAQ:VNOM), S & T Bancorp Inc (NASDAQ:STBA), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks’ market valuations are similar to Government Properties Income Trust (NYSE:GOV)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WABC 6 15600 -3
VNOM 5 20812 0
STBA 5 7375 -1
MNTA 17 277693 -2

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $80 million.That figure was $59 millions in Government Properties Income Trust (NYSE:GOV)’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand, Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 5 bullish hedge fund positions. Government Properties Income Trust (NYSE:GOV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) might be a better candidate to consider a long position.