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Hedge Funds Are Dumping MBIA Inc. (MBI)

Debasis Saha

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of MBIA Inc. (NYSE:MBI) based on that data.

MBIA Inc. (NYSE:MBI) investors should be aware of a decrease in hedge fund interest in recent months. MBI was in 15 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with MBI positions at the end of the previous quarter. Our calculations also showed that MBI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26092" align="aligncenter" width="400"] Joel Greenblatt of Gotham Asset Management[/caption]

GOTHAM ASSET MANAGEMENT

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action regarding MBIA Inc. (NYSE:MBI).

How are hedge funds trading MBIA Inc. (NYSE:MBI)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MBI over the last 18 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is MBI A Good Stock To Buy?

More specifically, Kahn Brothers was the largest shareholder of MBIA Inc. (NYSE:MBI), with a stake worth $36.5 million reported as of the end of September. Trailing Kahn Brothers was EJF Capital, which amassed a stake valued at $24.2 million. Hosking Partners, Fine Capital Partners, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to MBIA Inc. (NYSE:MBI), around 8.23% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, setting aside 7.34 percent of its 13F equity portfolio to MBI.

Since MBIA Inc. (NYSE:MBI) has experienced bearish sentiment from the smart money, it's easy to see that there was a specific group of hedgies who sold off their full holdings last quarter. It's worth mentioning that Charles Lemonides's Valueworks LLC sold off the biggest position of the 750 funds followed by Insider Monkey, comprising close to $6.1 million in stock, and Chuck Royce's Royce & Associates was right behind this move, as the fund said goodbye to about $5.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 9 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to MBIA Inc. (NYSE:MBI). These stocks are EnLink Midstream LLC (NYSE:ENLC), Orthofix Medical Inc (NASDAQ:OFIX), ACM Research, Inc. (NASDAQ:ACMR), and Banco BBVA Argentina S.A. (NYSE:BBAR). This group of stocks' market values are closest to MBI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENLC,7,14255,-4 OFIX,17,77612,1 ACMR,10,43651,0 BBAR,8,4407,-1 Average,10.5,34981,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $108 million in MBI's case. Orthofix Medical Inc (NASDAQ:OFIX) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 7 bullish hedge fund positions. MBIA Inc. (NYSE:MBI) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately MBI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MBI were disappointed as the stock returned -0.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.

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