How Mercantile Bank Corp. (MBWM) Compares To Its Peers

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Hedge fund interest in Mercantile Bank Corp. (NASDAQ:MBWM) shares was flat during the third quarter. This is usually a negative indicator. 6 hedge funds that we track owned the stock on September 30, same as on June 30. At the end of this article we will also compare MBWM to other stocks including Western Asset Mortgage Capital Corp (NYSE:WMC), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), and NewLink Genetics Corp (NASDAQ:NLNK) to get a better sense of its popularity.

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How have hedgies been trading Mercantile Bank Corp. (NASDAQ:MBWM)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. On the other hand, there were a total of 7 hedge funds with a bullish position in MBWM at the beginning of this year, so hedge fund interest has slipped slightly in 2016. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in Mercantile Bank Corp. (NASDAQ:MBWM). Renaissance Technologies has a $17.3 million position in the stock. The second most bullish fund manager is Castine Capital Management, led by Paul Magidson, Jonathan Cohen and Ostrom Enders, holding a $4.6 million position; 2.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions consist of Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

We view hedge fund activity in the stock as unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mercantile Bank Corp. (NASDAQ:MBWM) but similarly valued. These stocks are Western Asset Mortgage Capital Corp (NYSE:WMC), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), NewLink Genetics Corp (NASDAQ:NLNK), and Winmark Corporation (NASDAQ:WINA). This group of stocks’ market caps match MBWM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMC 6 6129 2
MCRI 10 46957 -4
NLNK 12 52368 -1
WINA 3 62096 0

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $24 million in MBWM’s case. NewLink Genetics Corp (NASDAQ:NLNK) is the most popular stock in this table. On the other hand Winmark Corporation (NASDAQ:WINA) 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. In this regard NLNK might be a better candidate to consider taking a long position in.

Disclosure: None