Do Hedge Funds Love Markel Corporation (MKL)?

Abigail Fisher

Updated Sat, Dec 15, 2018, 8:50 PM

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Markel Corporation (NYSE:MKL) from the perspective of those elite funds.

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Is Markel Corporation (NYSE:MKL) a good investment now? The smart money is taking an optimistic view. The number of bullish hedge fund positions moved up by 4 lately. 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 18 percentage points since May 2014 through December 3, 2018 (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 view the latest hedge fund action encompassing Markel Corporation (NYSE:MKL).

What does the smart money think about Markel Corporation (NYSE:MKL)?

Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MKL over the last 13 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Akre Capital Management held the most valuable stake in Markel Corporation (NYSE:MKL), which was worth $609.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $263.9 million worth of shares. Moreover, Polar Capital, Giverny Capital, and Horizon Asset Management were also bullish on Markel Corporation (NYSE:MKL), allocating a large percentage of their portfolios to this stock.

Consequently, some big names were leading the bulls' herd. Stevens Capital Management, managed by Matthew Tewksbury, assembled the biggest position in Markel Corporation (NYSE:MKL). Stevens Capital Management had $3 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.6 million position during the quarter. The following funds were also among the new MKL investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Matthew Hulsizer's PEAK6 Capital Management, and Frederick DiSanto's Ancora Advisors.

Let's now review hedge fund activity in other stocks similar to Markel Corporation (NYSE:MKL). These stocks are Realty Income Corporation (NYSE:O), Huntington Bancshares Incorporated (NASDAQ:HBAN), National Oilwell Varco, Inc. (NYSE:NOV), and ResMed Inc. (NYSE:RMD). 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 O,16,178027,1 HBAN,26,261222,0 NOV,22,639635,8 RMD,24,488694,5 Average,22,391895,3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $1.15 billion in MKL's case. Huntington Bancshares Incorporated (NASDAQ:HBAN) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 16 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. In this regard HBAN might be a better candidate to consider a long position.

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

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