It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Markel Corporation (NYSE:MKL) and compare its performance against hedge funds’ favorite stocks.
Markel Corporation (NYSE:MKL) has experienced an increase in hedge fund interest lately. MKL was in 28 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with MKL holdings at the end of the previous quarter. Our calculations also showed that MKL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Managemnet
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s check out the new hedge fund action surrounding Markel Corporation (NYSE:MKL).
How are hedge funds trading Markel Corporation (NYSE:MKL)?
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in MKL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Charles Akre’s Akre Capital Management has the most valuable position in Markel Corporation (NYSE:MKL), worth close to $606.3 million, accounting for 6% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $251.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Brian Ashford-Russell and Tim Woolley’s Polar Capital, Dmitry Balyasny’s Balyasny Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Markel Corporation (NYSE:MKL), around 9.01% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, earmarking 5.98 percent of its 13F equity portfolio to MKL.
Consequently, key hedge funds were leading the bulls’ herd. Winton Capital Management, managed by David Harding, established the largest position in Markel Corporation (NYSE:MKL). Winton Capital Management had $17.3 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $4.7 million investment in the stock during the quarter. The other funds with new positions in the stock are David E. Shaw’s D E Shaw, Steve Cohen’s Point72 Asset Management, and Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Markel Corporation (NYSE:MKL) but similarly valued. We will take a look at First Republic Bank (NYSE:FRC), W.W. Grainger, Inc. (NYSE:GWW), Trip.com Group Limited (NASDAQ:CTRP), and Cheniere Energy, Inc. (NYSE:LNG). This group of stocks’ market valuations are closest to MKL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRC | 19 | 815413 | -3 |
| GWW | 22 | 526223 | 1 |
| CTRP | 35 | 876950 | 8 |
| LNG | 40 | 3859554 | -3 |
| Average | 29 | 1519535 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1520 million. That figure was $1395 million in MKL’s case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 19 bullish hedge fund positions. Markel Corporation (NYSE:MKL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MKL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MKL investors were disappointed as the stock returned 8.9% in 2019 (as of 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
