Is First Merchants Corporation (FRME) Going to Burn These Hedge Funds?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

First Merchants Corporation (NASDAQ:FRME) shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 11 hedge funds in our database with FRME holdings at the end of September. 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 Tronox Ltd (NYSE:TROX), Redwood Trust, Inc. (NYSE:RWT), and Ascena Retail Group Inc (NASDAQ:ASNA) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Now, let’s take a gander at the latest action encompassing First Merchants Corporation (NASDAQ:FRME).

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

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FRME over the last 5 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the biggest position in First Merchants Corporation (NASDAQ:FRME), worth close to $19.8 million, amounting to less than 0.1% of its total 13F portfolio. The second largest stake is held by Castine Capital Management, led by Paul Magidson, Jonathan Cohen. And Ostrom Enders, which holds a $7.7 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Israel Englander’s Millennium Management, Cliff Asness’s AQR Capital Management and Robert I. Usdan and Wayne K. Goldstein’s Endicott Management. 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-microcap stocks.