Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards MBIA Inc. (NYSE:MBI) to find out whether there were any major changes in hedge funds’ views.
Is MBI a good stock to buy now? MBIA Inc. (NYSE:MBI) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of September. Our calculations also showed that MBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MBI to other stocks including Oceaneering International (NYSE:OII), Miller Industries, Inc. (NYSE:MLR), and Merus N.V. (NASDAQ:MRUS) to get a better sense of its popularity.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Now we’re going to take a peek at the key hedge fund action encompassing MBIA Inc. (NYSE:MBI).
Do Hedge Funds Think MBI Is A Good Stock To Buy Now?
At third quarter’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in MBI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Kahn Brothers was the largest shareholder of MBIA Inc. (NYSE:MBI), with a stake worth $28.2 million reported as of the end of September. Trailing Kahn Brothers was Hosking Partners, which amassed a stake valued at $13.2 million. Valueworks LLC, Fine Capital Partners, and Chou Associates Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to MBIA Inc. (NYSE:MBI), around 5.34% of its 13F portfolio. Valueworks LLC is also relatively very bullish on the stock, setting aside 5.04 percent of its 13F equity portfolio to MBI.
Because MBIA Inc. (NYSE:MBI) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Emanuel J. Friedman’s EJF Capital said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $13.5 million in stock. Ron Gutfleish’s fund, Elm Ridge Capital, also cut its stock, about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MBIA Inc. (NYSE:MBI) but similarly valued. These stocks are Oceaneering International (NYSE:OII), Miller Industries, Inc. (NYSE:MLR), Merus N.V. (NASDAQ:MRUS), Franks International NV (NYSE:FI), Prevail Therapeutics Inc. (NASDAQ:PRVL), Intelligent Systems Corporation (NYSE:INS), and Daseke, Inc. (NASDAQ:DSKE). This group of stocks’ market valuations are closest to MBI’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $65 million in MBI’s case. Oceaneering International (NYSE:OII) is the most popular stock in this table. On the other hand Intelligent Systems Corporation (NYSE:INS) is the least popular one with only 8 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. Our overall hedge fund sentiment score for MBI is 61. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on MBI as the stock returned 20.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.