Is Mercer International Inc. (NASDAQ:MERC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Mercer International Inc. (NASDAQ:MERC) investors should be aware of a decrease in support from the world's most elite money managers lately. Our calculations also showed that MERC isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the latest hedge fund action encompassing Mercer International Inc. (NASDAQ:MERC).
What have hedge funds been doing with Mercer International Inc. (NASDAQ:MERC)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the fourth quarter of 2018. On the other hand, there were a total of 17 hedge funds with a bullish position in MERC a year ago. So, let's check out 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, Jeffrey Gates's Gates Capital Management has the number one position in Mercer International Inc. (NASDAQ:MERC), worth close to $40.4 million, corresponding to 1.8% of its total 13F portfolio. Coming in second is Jonathan Kolatch of Redwood Capital Management, with a $28 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Jim Simons's Renaissance Technologies, Tom Wagner and Ara Cohen's Knighthead Capital and Ernest Chow and Jonathan Howe's Sensato Capital Management.
Due to the fact that Mercer International Inc. (NASDAQ:MERC) has experienced a decline in interest from the smart money, logic holds that there lies a certain "tier" of hedgies that slashed their positions entirely heading into Q3. Interestingly, Cliff Asness's AQR Capital Management sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $0.7 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also sold off its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Mercer International Inc. (NASDAQ:MERC) but similarly valued. These stocks are Solar Capital Ltd. (NASDAQ:SLRC), Social Capital Hedosophia Holdings Corp. (NYSE:IPOA), Qiwi PLC (NASDAQ:QIWI), and Changyou.Com Ltd (NASDAQ:CYOU). This group of stocks' market valuations are closest to MERC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLRC,11,60312,-1 IPOA,22,283400,1 QIWI,12,77832,4 CYOU,11,47035,4 Average,14,117145,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $141 million in MERC's case. Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) is the most popular stock in this table. On the other hand Solar Capital Ltd. (NASDAQ:SLRC) is the least popular one with only 11 bullish hedge fund positions. Mercer International Inc. (NASDAQ:MERC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on MERC as the stock returned 10.5% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.