Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of First Merchants Corporation (NASDAQ:FRME) based on that data.
Is FRME a good stock to buy now? First Merchants Corporation (NASDAQ:FRME) investors should be aware of an increase in enthusiasm from smart money in recent months. First Merchants Corporation (NASDAQ:FRME) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 16. Our calculations also showed that FRME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a glance at the latest hedge fund action regarding First Merchants Corporation (NASDAQ:FRME).
Do Hedge Funds Think FRME Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FRME over the last 21 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Cardinal Capital held the most valuable stake in First Merchants Corporation (NASDAQ:FRME), which was worth $39 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $9.2 million worth of shares. Millennium Management, Arrowstreet Capital, and ExodusPoint Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to First Merchants Corporation (NASDAQ:FRME), around 1.63% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to FRME.
As one would reasonably expect, some big names have jumped into First Merchants Corporation (NASDAQ:FRME) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in First Merchants Corporation (NASDAQ:FRME). Arrowstreet Capital had $2.6 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Phil Stone’s Fourthstone LLC, John Overdeck and David Siegel’s Two Sigma Advisors, and Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as First Merchants Corporation (NASDAQ:FRME) but similarly valued. These stocks are Alexander’s, Inc. (NYSE:ALX), Seabridge Gold, Inc. (NYSE:SA), CBIZ, Inc. (NYSE:CBZ), ACM Research, Inc. (NASDAQ:ACMR), Columbia Property Trust Inc (NYSE:CXP), Xperi Holding Corporation (NASDAQ:XPER), and Retail Properties of America Inc (NYSE:RPAI). This group of stocks’ market caps are closest to FRME’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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 $95 million. That figure was $66 million in FRME’s case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Alexander’s, Inc. (NYSE:ALX) is the least popular one with only 10 bullish hedge fund positions. First Merchants Corporation (NASDAQ:FRME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FRME is 56.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on FRME as the stock returned 58.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.