Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Merchants Bancshares, Inc. (NASDAQ:MBVT).
Merchants Bancshares, Inc. (NASDAQ:MBVT) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of September. At the end of this article we will also compare MBVT to other stocks, including Blueknight Energy Partners L.P. (NASDAQ:BKEP), Five9 Inc (NASDAQ:FIVN), and North Atlantic Drilling Ltd. (NYSE:NADL) to get a better sense of its popularity.
Follow Merchants Bancshares Inc (NASDAQ:MBVT)
Follow Merchants Bancshares Inc (NASDAQ:MBVT)
At the moment there are a multitude of gauges stock market investors put to use to grade stocks. A duo of the less utilized gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the elite money managers can beat the broader indices by a healthy amount (see the details here).
Now, let’s take a look at the key action encompassing Merchants Bancshares, Inc. (NASDAQ:MBVT).
How are hedge funds trading Merchants Bancshares, Inc. (NASDAQ:MBVT)?
At the Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Paul Magidson, Jonathan Cohen. And Ostrom Enders’s Castine Capital Management has the largest position in Merchants Bancshares, Inc. (NASDAQ:MBVT), worth close to $4.3 million, accounting for 1.9% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds an $1.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Joseph A. Jolson’s Harvest Capital Strategies, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Elizabeth Park Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case, because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Harvest Capital Strategies).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Merchants Bancshares, Inc. (NASDAQ:MBVT) but similarly valued. These stocks are Blueknight Energy Partners L.P. (NASDAQ:BKEP), Five9 Inc (NASDAQ:FIVN), North Atlantic Drilling Ltd. (NYSE:NADL), and New America High Income Fund Inc. (NYSE:HYB). This group of stocks’ market valuations are closest to MBVT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BKEP | 5 | 36682 | 1 |
| FIVN | 7 | 9920 | -6 |
| NADL | 4 | 4822 | -1 |
| HYB | 4 | 6739 | 1 |
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $15 million, compared to $7 million in MBVT’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table while, North Atlantic Drilling Ltd. (NYSE:NADL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks, Merchants Bancshares, Inc. (NASDAQ:MBVT) is not very popular, as it also registered only 4 funds with long positions. 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 required.
