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

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at First Merchants Corporation (NASDAQ:FRME) from the perspective of those elite funds.

Is First Merchants Corporation (NASDAQ:FRME) an excellent investment today? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 6 recently. FRME was in 8 hedge funds’ portfolios at the end of the third quarter of 2015. There were 14 hedge funds in our database with FRME holdings at the end of the previous quarter. At the end of this article we will also compare FRME to other stocks including Rogers Corporation (NYSE:ROG), Boise Cascade Co (NYSE:BCC), and Semtech Corporation (NASDAQ:SMTC) to get a better sense of its popularity.

Keeping this in mind, let’s view the fresh action regarding First Merchants Corporation (NASDAQ:FRME).

Hedge fund activity in First Merchants Corporation (NASDAQ:FRME)

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Robert I. Usdan and Wayne K. Goldstein’s Endicott Management has the biggest position in First Merchants Corporation (NASDAQ:FRME), worth close to $37 million, corresponding to 13.7% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds an $19.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Paul Magidson, Jonathan Cohen. And Ostrom Enders’s Castine Capital Management, Ken Fisher’s Fisher Asset Management and D. E. Shaw’s D E Shaw.

Seeing as First Merchants Corporation (NASDAQ:FRME) has witnessed falling interest from hedge fund managers, we can see that there is a sect of funds who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the largest investment of the 700 funds monitored by Insider Monkey, worth about $5.4 million in stock, and Robert B. Gillam’s McKinley Capital Management was right behind this move, as the fund dumped about $3.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to First Merchants Corporation (NASDAQ:FRME). We will take a look at Rogers Corporation (NYSE:ROG), Boise Cascade Co (NYSE:BCC), Semtech Corporation (NASDAQ:SMTC), and II-VI, Inc. (NASDAQ:IIVI). This group of stocks’ market caps are closest to FRME’s market cap.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $71 million in FRME’s case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand Semtech Corporation (NASDAQ:SMTC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks First Merchants Corporation (NASDAQ:FRME) is even less popular than SMTC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.