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Do Hedge Funds and Insiders Love Merck & Co., Inc. (NYSE:MRK)?

Is Merck & Co., Inc. (NYSE:MRK) worth your attention right now? Prominent investors are in a pessimistic mood. The number of bullish hedge fund bets fell by 1 in recent months.

Merck and Co., Inc.

According to most shareholders, hedge funds are viewed as underperforming, old financial tools of years past. While there are more than 8000 funds in operation at the moment, we choose to focus on the aristocrats of this club, about 450 funds. It is estimated that this group has its hands on the majority of the hedge fund industry’s total asset base, and by keeping an eye on their top equity investments, we have determined a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).

Equally as important, optimistic insider trading sentiment is a second way to break down the world of equities. Just as you’d expect, there are a number of motivations for an executive to downsize shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Several empirical studies have demonstrated the valuable potential of this strategy if piggybackers know where to look (learn more here).

With these “truths” under our belt, it’s important to take a glance at the latest action encompassing Merck & Co., Inc. (NYSE:MRK).

How have hedgies been trading Merck & Co., Inc. (NYSE:MRK)?

At the end of the fourth quarter, a total of 58 of the hedge funds we track were bullish in this stock, a change of -2% from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably.

Of the funds we track, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the biggest position in Merck & Co., Inc. (NYSE:MRK). Adage Capital Management has a $151 million position in the stock, comprising 0.6% of its 13F portfolio. Coming in second is Ric Dillon of Diamond Hill Capital, with a $130 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other hedge funds with similar optimism include Cliff Asness’s AQR Capital Management, John A. Levin’s Levin Capital Strategies and Samuel Isaly’s OrbiMed Advisors.

Judging by the fact that Merck & Co., Inc. (NYSE:MRK) has experienced bearish sentiment from hedge fund managers, we can see that there were a few hedgies who sold off their entire stakes at the end of the year. Intriguingly, Sean Cullinan’s Point State Capital dropped the biggest stake of the “upper crust” of funds we monitor, worth an estimated $292 million in stock., and Donald Chiboucis of Columbus Circle Investors was right behind this move, as the fund dumped about $72 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds at the end of the year.

Insider trading activity in Merck & Co., Inc. (NYSE:MRK)

Insider trading activity, especially when it’s bullish, is most useful when the company we’re looking at has seen transactions within the past 180 days. Over the latest 180-day time period, Merck & Co., Inc. (NYSE:MRK) has seen zero unique insiders purchasing, and 3 insider sales (see the details of insider trades here).

With the results demonstrated by our tactics, retail investors must always keep an eye on hedge fund and insider trading sentiment, and Merck & Co., Inc. (NYSE:MRK) is no exception.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

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