Hedge fund managers like David Einhorn, Bill Ackman, 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: Markel Corporation (NYSE:MKL).
Markel Corporation (NYSE:MKL) has seen a decrease in support from the world's most elite money managers recently. MKL was in 23 hedge funds' portfolios at the end of March. There were 24 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.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let's go over the fresh hedge fund action regarding Markel Corporation (NYSE:MKL).
How are hedge funds trading Markel Corporation (NYSE:MKL)?
At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in MKL a year ago. With hedgies' capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Charles Akre's Akre Capital Management has the biggest position in Markel Corporation (NYSE:MKL), worth close to $511.2 million, comprising 5.4% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $227.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Brian Ashford-Russell and Tim Woolley's Polar Capital, Francois Rochon's Giverny Capital and Cliff Asness's AQR Capital Management.
Due to the fact that Markel Corporation (NYSE:MKL) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of money managers that slashed their full holdings in the third quarter. Interestingly, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $4.5 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund dumped about $4.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Markel Corporation (NYSE:MKL). These stocks are CNH Industrial NV (NYSE:CNHI), Weibo Corp (NASDAQ:WB), MGM Resorts International (NYSE:MGM), and International Flavors & Fragrances Inc (NYSE:IFF). All of these stocks' market caps are similar to MKL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNHI,23,406434,7 WB,13,448621,-4 MGM,45,1756675,-1 IFF,16,188308,-5 Average,24.25,700010,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $700 million. That figure was $1039 million in MKL's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 13 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on MKL as the stock returned 5.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.