In this article we will check out the progression of hedge fund sentiment towards Mercantile Bank Corp. (NASDAQ:MBWM) 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 Mercantile Bank Corp. (NASDAQ:MBWM) a bargain? The best stock pickers are reducing their bets on the stock. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that MBWM 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). 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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 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_673876" align="aligncenter" width="398"] John Overdeck of Two Sigma Advisors[/caption]
At Insider Monkey 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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's review the fresh hedge fund action surrounding Mercantile Bank Corp. (NASDAQ:MBWM).
What have hedge funds been doing with Mercantile Bank Corp. (NASDAQ:MBWM)?
At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MBWM over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in Mercantile Bank Corp. (NASDAQ:MBWM). Renaissance Technologies has a $19.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $1.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish comprise David Harding's Winton Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Mercantile Bank Corp. (NASDAQ:MBWM), around 0.02% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to MBWM.
Due to the fact that Mercantile Bank Corp. (NASDAQ:MBWM) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedgies that slashed their full holdings in the third quarter. Interestingly, Israel Englander's Millennium Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, worth close to $0.2 million in stock, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors was right behind this move, as the fund dumped about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Mercantile Bank Corp. (NASDAQ:MBWM). These stocks are Adesto Technologies Corporation (NASDAQ:IOTS), New Gold Inc. (NYSE:NGD), 89bio, Inc. (NASDAQ:ETNB), and Organigram Holdings Inc. (NASDAQ:OGI). All of these stocks' market caps resemble MBWM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IOTS,15,76816,0 NGD,10,34981,-2 ETNB,3,187170,-3 OGI,7,2666,2 Average,8.75,75408,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $22 million in MBWM's case. Adesto Technologies Corporation (NASDAQ:IOTS) is the most popular stock in this table. On the other hand 89bio, Inc. (NASDAQ:ETNB) is the least popular one with only 3 bullish hedge fund positions. Mercantile Bank Corp. (NASDAQ:MBWM) 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately MBWM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MBWM investors were disappointed as the stock returned 8.4% 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.
Disclosure: None. This article was originally published at Insider Monkey.