We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Spirit Realty Capital Inc (NYSE:SRC).
Spirit Realty Capital Inc (NYSE:SRC) has experienced an increase in enthusiasm from smart money in recent months. Our calculations also showed that SRC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="399"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a gander at the latest hedge fund action regarding Spirit Realty Capital Inc (NYSE:SRC).
What have hedge funds been doing with Spirit Realty Capital Inc (NYSE:SRC)?
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the third quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in SRC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Spirit Realty Capital Inc (NYSE:SRC), with a stake worth $83.2 million reported as of the end of September. Trailing Citadel Investment Group was Echo Street Capital Management, which amassed a stake valued at $28.7 million. Waterfront Capital Partners, Two Sigma Advisors, and Winton Capital 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 Hill Winds Capital allocated the biggest weight to Spirit Realty Capital Inc (NYSE:SRC), around 5.47% of its 13F portfolio. LDR Capital is also relatively very bullish on the stock, setting aside 4.87 percent of its 13F equity portfolio to SRC.
As aggregate interest increased, key hedge funds have jumped into Spirit Realty Capital Inc (NYSE:SRC) headfirst. Waterfront Capital Partners, managed by Eduardo Abush, established the most outsized position in Spirit Realty Capital Inc (NYSE:SRC). Waterfront Capital Partners had $21.2 million invested in the company at the end of the quarter. Lawrence Raiman's LDR Capital also initiated a $8.1 million position during the quarter. The other funds with brand new SRC positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Matthew Tewksbury's Stevens Capital Management, and Mika Toikka's AlphaCrest Capital Management.
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. These stocks are Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), MasTec, Inc. (NYSE:MTZ), MSA Safety Incorporated (NYSE:MSA), and Brunswick Corporation (NYSE:BC). This group of stocks' market caps are closest to SRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNFP,16,105654,0 MTZ,41,286474,8 MSA,15,44149,5 BC,36,675096,7 Average,27,277843,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $236 million in SRC's case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand MSA Safety Incorporated (NYSE:MSA) is the least popular one with only 15 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SRC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SRC investors were disappointed as the stock returned -46.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.