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Was The Smart Money Right About Markel Corporation (MKL)?

Abigail Fisher
·6 min read

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Markel Corporation (NYSE:MKL).

Markel Corporation (NYSE:MKL) investors should be aware of an increase in enthusiasm from smart money in recent months. Markel Corporation (NYSE:MKL) was in 33 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. Our calculations also showed that MKL isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most stock holders, hedge funds are seen as slow, old investment tools of years past. While there are over 8000 funds in operation at the moment, We hone in on the leaders of this club, around 850 funds. These hedge fund managers command the majority of the hedge fund industry's total asset base, and by tracking their first-class stock picks, Insider Monkey has figured out a few investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Charles Akre of Akre Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's view the fresh hedge fund action regarding Markel Corporation (NYSE:MKL).

Hedge fund activity in Markel Corporation (NYSE:MKL)

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in MKL a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

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 $452.7 million, corresponding to 3.4% of its total 13F portfolio. On Akre Capital Management's heels is Renaissance Technologies, which holds a $174.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Brian Ashford-Russell and Tim Woolley's Polar Capital, Wallace Weitz's Wallace R. Weitz & Co. and Francois Rochon's Giverny Capital. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Markel Corporation (NYSE:MKL), around 4.05% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, earmarking 3.41 percent of its 13F equity portfolio to MKL.

As industrywide interest jumped, key money managers have jumped into Markel Corporation (NYSE:MKL) headfirst. Select Equity Group, managed by Robert Joseph Caruso, created the most valuable position in Markel Corporation (NYSE:MKL). Select Equity Group had $6.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $4.9 million position during the quarter. The other funds with brand new MKL positions are Minhua Zhang's Weld Capital Management, Parvinder Thiara's Athanor Capital, and Paul Tudor Jones's Tudor Investment Corp.

Let's also examine hedge fund activity in other stocks similar to Markel Corporation (NYSE:MKL). These stocks are SK Telecom Co., Ltd. (NYSE:SKM), Insulet Corporation (NASDAQ:PODD), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Expeditors International of Washington, Inc. (NASDAQ:EXPD), Qorvo Inc (NASDAQ:QRVO), Etsy Inc (NASDAQ:ETSY), and Genuine Parts Company (NYSE:GPC). This group of stocks' market valuations resemble MKL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKM,8,129598,3 PODD,44,985462,8 JBHT,24,215950,-1 EXPD,33,443457,2 QRVO,51,1608774,12 ETSY,43,1727421,5 GPC,20,144284,-2 Average,31.9,750707,3.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $944 million in MKL's case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Markel Corporation (NYSE:MKL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MKL is 61.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately MKL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MKL were disappointed as the stock returned 1% since the end of June (through 10/30) 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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