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Hedge Funds Grow Bearish on Mercer International Inc. (MERC) in Q3

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The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small-cap stocks. In this article, we take a closer look at Mercer International Inc. (NASDAQ:MERC) from the perspective of those elite funds.

Is Mercer International Inc. (NASDAQ:MERC) the right investment to pursue these days? The smart money is taking a bearish view. The number of long hedge fund positions dropped by 4 in recent months. At the end of this article we will also compare MERC to other stocks including First Potomac Realty Trust (NYSE:FPO), United Financial Bancorp, Inc. (NASDAQ:UBNK), and Silver Spring Networks Inc (NYSE:SSNI) to get a better sense of its popularity.

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In the eyes of most stock holders, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are more than 8,000 funds trading at the moment, our researchers look at the upper echelon of this club, about 700 funds. These money managers manage bulk of all hedge funds’ total asset base, and by keeping an eye on their highest performing stock picks, Insider Monkey has discovered several investment strategies that have historically outperformed Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to take a gander at the fresh action encompassing Mercer International Inc. (NASDAQ:MERC).

How are hedge funds trading Mercer International Inc. (NASDAQ:MERC)?

Heading into Q4, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a 17% rise from the second quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gates Capital Management, managed by Jeffrey Gates, holds the most valuable position in Mercer International Inc. (NASDAQ:MERC). Gates Capital Management has a $126.6 million position in the stock, comprising 4.9% of its 13F portfolio. The second-largest stake is held by Knighthead Capital, managed by Tom Wagner and Ara Cohen, which holds a $32.8 million position; the fund has 8.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Jonathan Kolatch’s Redwood Capital Management, Joe Huber’s Huber Capital Management, and Renaissance Technologies.

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