Do Hedge Funds Love First Merchants Corporation (FRME)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like First Merchants Corporation (NASDAQ:FRME).

Is First Merchants Corporation (NASDAQ:FRME) ready to rally soon? Hedge funds are turning less bullish. The number of long hedge fund positions were cut by 3 lately. Our calculations also showed that FRME isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most investors, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are more than 8000 funds in operation today, Our experts choose to focus on the crème de la crème of this club, about 750 funds. These money managers control the lion’s share of the hedge fund industry’s total capital, and by tailing their finest investments, Insider Monkey has identified a few investment strategies that have historically exceeded the market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the fresh hedge fund action encompassing First Merchants Corporation (NASDAQ:FRME).

How are hedge funds trading First Merchants Corporation (NASDAQ:FRME)?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in FRME a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with FRME Positions

The largest stake in First Merchants Corporation (NASDAQ:FRME) was held by Cardinal Capital, which reported holding $53.3 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $24.8 million position. Other investors bullish on the company included Castine Capital Management, AQR Capital Management, and Fisher Asset Management.

Judging by the fact that First Merchants Corporation (NASDAQ:FRME) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that elected to cut their positions entirely heading into Q3. At the top of the heap, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors dumped the biggest position of the 750 funds followed by Insider Monkey, valued at about $1.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as First Merchants Corporation (NASDAQ:FRME) but similarly valued. These stocks are Varonis Systems Inc (NASDAQ:VRNS), Minerals Technologies Inc (NYSE:MTX), Eagle Bancorp, Inc. (NASDAQ:EGBN), and Dycom Industries, Inc. (NYSE:DY). This group of stocks’ market valuations resemble FRME’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRNS 24 350819 -1
MTX 15 110784 1
EGBN 11 47787 0
DY 17 67705 0
Average 16.75 144274 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $95 million in FRME’s case. Varonis Systems Inc (NASDAQ:VRNS) is the most popular stock in this table. On the other hand Eagle Bancorp, Inc. (NASDAQ:EGBN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks First Merchants Corporation (NASDAQ:FRME) is even less popular than EGBN. Hedge funds dodged a bullet by taking a bearish stance towards FRME. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FRME wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FRME investors were disappointed as the stock returned 0.1% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.