In this article we will check out the progression of hedge fund sentiment towards Merchants Bancorp (NASDAQ:MBIN) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Merchants Bancorp (NASDAQ:MBIN) the right pick for your portfolio? The smart money is in a bearish mood. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that MBIN 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). MBIN was in 8 hedge funds' portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with MBIN holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_735636" align="aligncenter" width="398"] Matthew Lindenbaum of Basswood Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a glance at the key hedge fund action surrounding Merchants Bancorp (NASDAQ:MBIN).
How are hedge funds trading Merchants Bancorp (NASDAQ:MBIN)?
At Q1's end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MBIN over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the biggest position in Merchants Bancorp (NASDAQ:MBIN). Basswood Capital has a $6.8 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $1.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ken Griffin's Citadel Investment Group and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Merchants Bancorp (NASDAQ:MBIN), around 0.79% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, designating 0.0032 percent of its 13F equity portfolio to MBIN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium 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 none of the 750+ hedge funds tracked by Insider Monkey identified MBIN as a viable investment and initiated a position in the stock.
Let's now take a look at hedge fund activity in other stocks similar to Merchants Bancorp (NASDAQ:MBIN). We will take a look at Ichor Holdings, Ltd. (NASDAQ:ICHR), American Vanguard Corp. (NYSE:AVD), MYR Group Inc (NASDAQ:MYRG), and Heska Corp (NASDAQ:HSKA). All of these stocks' market caps resemble MBIN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICHR,14,33383,-1 AVD,8,15829,2 MYRG,10,23804,-2 HSKA,15,50445,2 Average,11.75,30865,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $10 million in MBIN's case. Heska Corp (NASDAQ:HSKA) is the most popular stock in this table. On the other hand American Vanguard Corp. (NYSE:AVD) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Merchants Bancorp (NASDAQ:MBIN) is even less popular than AVD. Hedge funds dodged a bullet by taking a bearish stance towards MBIN. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but managed to beat the market by 14.8 percentage points. Unfortunately MBIN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MBIN investors were disappointed as the stock returned 15.3% during the second quarter (through June 17th) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.