We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Markel Corporation (NYSE:MKL).
Markel Corporation (NYSE:MKL) investors should be aware of an increase in enthusiasm from smart money recently. 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 below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_256989" align="aligncenter" width="450"] Dmitry Balyasny of Balyasny Asset Managemnet[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the fresh hedge fund action encompassing Markel Corporation (NYSE:MKL).
What does smart money think about Markel Corporation (NYSE:MKL)?
At Q3's end, a total of 28 of the hedge funds tracked by Insider Monkey were long 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 see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Charles Akre's Akre Capital Management has the number one position in Markel Corporation (NYSE:MKL), worth close to $606.3 million, accounting for 6% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $251.6 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass 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 portfolio. Akre Capital Management is also relatively very bullish on the stock, dishing out 5.98 percent of its 13F equity portfolio to MKL.
As aggregate interest increased, some big names were breaking ground themselves. Winton Capital Management, managed by David Harding, initiated the most outsized 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 also examine hedge fund activity in other stocks similar to Markel Corporation (NYSE:MKL). These stocks are 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 values are closest to MKL's market value.
[table] 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 [/table]
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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -3.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.