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Do Hedge Funds Love MBIA Inc. (MBI)?

Reymerlyn Martin

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

MBIA Inc. (NYSE:MBI) investors should be aware of a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that MBI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Irving Kahn

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the new hedge fund action regarding MBIA Inc. (NYSE:MBI).

Hedge fund activity in MBIA Inc. (NYSE:MBI)

At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MBI over the last 16 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

MBI_oct2019

Of the funds tracked by Insider Monkey, Debra Fine's Fine Capital Partners has the number one position in MBIA Inc. (NYSE:MBI), worth close to $61.4 million, accounting for 10.9% of its total 13F portfolio. On Fine Capital Partners's heels is Irving Kahn of Kahn Brothers, with a $52.3 million position; the fund has 6.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Chuck Royce's Royce & Associates, David Rosen's Rubric Capital Management and Francis Chou's Chou Associates Management.

Due to the fact that MBIA Inc. (NYSE:MBI) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedge funds that elected to cut their positions entirely by the end of the second quarter. At the top of the heap, Guy Shahar's DSAM Partners sold off the largest investment of the 750 funds watched by Insider Monkey, worth about $0.3 million in stock. David Harding's fund, Winton Capital Management, also cut its stock, about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as MBIA Inc. (NYSE:MBI) but similarly valued. These stocks are Baytex Energy Corp (NYSE:BTE), Benefitfocus Inc (NASDAQ:BNFT), Homology Medicines, Inc. (NASDAQ:FIXX), and ScanSource, Inc. (NASDAQ:SCSC). All of these stocks' market caps match MBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BTE,7,48534,-3 BNFT,15,56723,-7 FIXX,18,184706,11 SCSC,8,51782,-2 Average,12,85436,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $203 million in MBI's case. Homology Medicines, Inc. (NASDAQ:FIXX) is the most popular stock in this table. On the other hand Baytex Energy Corp (NYSE:BTE) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MBI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MBI were disappointed as the stock returned -0.9% during the third quarter and underperformed 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 many of these stocks already outperformed the market so far this year.

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

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