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.
In this article, we’ll take a closer look at the latest hedge fund activity surrounding Mercer International Inc. (NASDAQ:MERC). Overall, among the funds we track the number of long bets on the stock declined by six. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Aclaris Therapeutics Inc (NASDAQ:ACRS), Otonomy Inc (NASDAQ:OTIC), and Titan International Inc (NYSE:TWI) to gather more data points.
Follow Mercer International Inc. (NASDAQ:MERC)
Follow Mercer International Inc. (NASDAQ:MERC)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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With all of this in mind, let’s view the latest action surrounding Mercer International Inc. (NASDAQ:MERC).
How have hedgies been trading Mercer International Inc. (NASDAQ:MERC)?
At the end of September, 15 funds from our database held shares of Mercer International, down by 29% over the quarter. By comparison, 22 hedge funds held shares or bullish call options in MERC heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Gates Capital Management, led by Jeffrey Gates, holds the biggest position in Mercer International Inc. (NASDAQ:MERC). Gates Capital Management has a $92.8 million position in the stock, comprising 3.3% of its 13F portfolio. Coming in second is Tom Wagner and Ara Cohen’s Knighthead Capital, which holds a $22.8 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Jonathan Kolatch’s Redwood Capital Management, Joe Huber’s Huber Capital Management, and Renaissance Technologies, one of the largest hedge funds in the world. We should note that Gates Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as Mercer International Inc. (NASDAQ:MERC) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Robert B. Gillam’s McKinley Capital Management cashed in the biggest position of all the hedgies studied by Insider Monkey, totaling an estimated $3.4 million in stock, and George McCabe’s Portolan Capital Management was right behind this move, as the fund dumped about $1.2 million worth of shares.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mercer International Inc. (NASDAQ:MERC) but similarly valued. We will take a look at Aclaris Therapeutics Inc (NASDAQ:ACRS), Otonomy Inc (NASDAQ:OTIC), Titan International Inc (NYSE:TWI), and ConnectOne Bancorp Inc (NASDAQ:CNOB). This group of stocks’ market valuations are similar to MERC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACRS | 12 | 118903 | 8 |
| OTIC | 11 | 84280 | -1 |
| TWI | 15 | 122943 | 2 |
| CNOB | 7 | 20010 | -1 |
As you can see these stocks had an average of 11 funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $170 million in MERC’s case. Titan International Inc (NYSE:TWI) is the most popular stock in this table, while ConnectOne Bancorp Inc (NASDAQ:CNOB) is the least popular one with only seven funds holding shares. Mercer International Inc. (NASDAQ:MERC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Titan International Inc (NYSE:TWI) might be a better candidate to consider taking a long position in.
Disclosure: none
