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Hedge Funds Souring On Markel Corporation (MKL)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Markel Corporation (NYSE:MKL) based on that data.

Markel Corporation (NYSE:MKL) investors should pay attention to a decrease in support from the world’s most elite money managers recently. MKL was in 32 hedge funds’ portfolios at the end of March. There were 37 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 Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the new hedge fund action encompassing Markel Corporation (NYSE:MKL).

How are hedge funds trading Markel Corporation (NYSE:MKL)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in MKL a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Markel Corporation (NYSE:MKL) was held by Akre Capital Management, which reported holding $461.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $195.4 million position. Other investors bullish on the company included Polar Capital, Wallace R. Weitz & Co., and Giverny Capital. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Markel Corporation (NYSE:MKL), around 5.01% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, setting aside 4.87 percent of its 13F equity portfolio to MKL.

Since Markel Corporation (NYSE:MKL) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that slashed their entire stakes heading into Q4. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth about $77.5 million in stock. Robert Joseph Caruso’s fund, Select Equity Group, also said goodbye to its stock, about $62.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Markel Corporation (NYSE:MKL). We will take a look at Seagate Technology plc (NASDAQ:STX), Galapagos NV (NASDAQ:GLPG), The J.M. Smucker Company (NYSE:SJM), and Domino’s Pizza, Inc. (NYSE:DPZ). This group of stocks’ market valuations are closest to MKL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STX 32 2205943 -3
GLPG 15 151547 1
SJM 36 479070 5
DPZ 45 1759501 14
Average 32 1149015 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1149 million. That figure was $982 million in MKL’s case. Domino’s Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 15 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately MKL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MKL investors were disappointed as the stock returned -3.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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