Here’s What Hedge Funds Think About MBIA Inc. (MBI)

Nina Todic

Tue, Jun 11, 2019, 6:23 PM

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about MBIA Inc. (NYSE:MBI) in this article.

Is MBIA Inc. (NYSE:MBI) a safe investment today? Prominent investors are betting on the stock. The number of bullish hedge fund bets rose by 1 lately. Our calculations also showed that mbi 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.

[caption id="attachment_191689" align="aligncenter" width="450"]

Francis Chou of Chou Associates Management[/caption]

Let's take a gander at the key hedge fund action surrounding MBIA Inc. (NYSE:MBI).

What does the smart money think about MBIA Inc. (NYSE:MBI)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MBI over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fine Capital Partners held the most valuable stake in MBIA Inc. (NYSE:MBI), which was worth $71.1 million at the end of the first quarter. On the second spot was Royce & Associates which amassed $26.8 million worth of shares. Moreover, Rubric Capital Management, Chou Associates Management, and Valueworks LLC were also bullish on MBIA Inc. (NYSE:MBI), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, some big names have jumped into MBIA Inc. (NYSE:MBI) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized call position in MBIA Inc. (NYSE:MBI). PEAK6 Capital Management had $0.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $0.3 million position during the quarter. The following funds were also among the new MBI investors: Guy Shahar's DSAM Partners, David Harding's Winton Capital Management, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.

Let's now review hedge fund activity in other stocks similar to MBIA Inc. (NYSE:MBI). These stocks are Kelly Services, Inc. (NASDAQ:KELYA), Tutor Perini Corp (NYSE:TPC), Enviva Partners, LP (NYSE:EVA), and Natus Medical Inc (NASDAQ:BABY). This group of stocks' market caps resemble MBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KELYA,13,19109,3 TPC,12,17648,5 EVA,7,89870,1 BABY,24,110207,9 Average,14,59209,4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $162 million in MBI's case. Natus Medical Inc (NASDAQ:BABY) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 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 -7.2% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

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

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