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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. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded First Merchants Corporation (NASDAQ:FRME) and determine whether the smart money was really smart about this stock.
First Merchants Corporation (NASDAQ:FRME) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of the first quarter of 2020. At the end of this article we will also compare FRME to other stocks including Inter Parfums, Inc. (NASDAQ:IPAR), Patterson Companies, Inc. (NASDAQ:PDCO), and Inspire Medical Systems, Inc. (NYSE:INSP) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most stock holders, hedge funds are perceived as worthless, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open at present, We choose to focus on the top tier of this club, approximately 850 funds. These hedge fund managers have their hands on the lion's share of all hedge funds' total capital, and by shadowing their unrivaled stock picks, Insider Monkey has uncovered a few investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
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Noam Gottesman of GLG Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. 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. With all of this in mind we're going to review the key hedge fund action encompassing First Merchants Corporation (NASDAQ:FRME).
How have hedgies been trading First Merchants Corporation (NASDAQ:FRME)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in FRME a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in First Merchants Corporation (NASDAQ:FRME) was held by Cardinal Capital, which reported holding $41.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $16.2 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to First Merchants Corporation (NASDAQ:FRME), around 2.02% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to FRME.
Due to the fact that First Merchants Corporation (NASDAQ:FRME) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of money managers that elected to cut their positions entirely in the first quarter. At the top of the heap, Thomas Bailard's Bailard Inc dropped the largest position of the 750 funds monitored by Insider Monkey, valued at about $0.5 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dumped its stock, about $0.5 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as First Merchants Corporation (NASDAQ:FRME) but similarly valued. We will take a look at Inter Parfums, Inc. (NASDAQ:IPAR), Patterson Companies, Inc. (NASDAQ:PDCO), Inspire Medical Systems, Inc. (NYSE:INSP), and AeroVironment, Inc. (NASDAQ:AVAV). This group of stocks' market values resemble FRME's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPAR,13,46189,-2 PDCO,17,55017,-8 INSP,25,335263,4 AVAV,10,51290,-3 Average,16.25,121940,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $65 million in FRME's case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 10 bullish hedge fund positions. First Merchants Corporation (NASDAQ:FRME) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately FRME wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FRME investors were disappointed as the stock returned 5% during the second 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.