Bats Global Markets Inc (BATS): Are Hedge Funds Right About This Stock?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Bats Global Markets Inc (BATS:BATS) .

The hedge fund sentiment towards Bats Global Markets Inc (BATS:BATS) remained flat at the end of last quarter. This is usually a negative indicator, although the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as LivaNova PLC (NASDAQ:LIVN), Associated Banc Corp (NYSE:ASB), and Valero Energy Partners LP (NYSE:VLP) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s go over the recent action surrounding Bats Global Markets Inc (BATS:BATS).

What does the smart money think about Bats Global Markets Inc (BATS:BATS)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long Bats Global Markets unchanged over the quarter. The graph below shows the change in the number of funds long the stock over the last five quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alec Litowitz and Ross Laser’s Magnetar Capital has the biggest position in Bats Global Markets Inc (BATS:BATS), worth close to $26.3 million, accounting for 0.4% of its total 13F portfolio. The second largest stake is held by Tiger Legatus Capital, led by Jesse Ro, which disclosed a $20 million position; 6.5% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Dmitry Balyasny’s Balyasny Asset Management, Gregg Moskowitz’s Interval Partners, and Clint Carlson’s Carlson Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Bats Global Markets Inc (BATS:BATS) has gone through bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Panayotis Takis Sparaggis’ Alkeon Capital Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $12.9 million in stock, and Principal Global Investors’ Columbus Circle Investors was right behind this move, as the fund sold off about $11.5 million worth of shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Bats Global Markets Inc (BATS:BATS) but similarly valued. These stocks are LivaNova PLC(NASDAQ:LIVN), Associated Banc Corp (NYSE:ASB), Valero Energy Partners LP (NYSE:VLP), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks’ market valuations resemble BATS’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $106 million in BATS’s case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Valero Energy Partners LP (NYSE:VLP) is the least popular one with only three funds holding shares. Bats Global Markets Inc (BATS:BATS) 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 Exelixis, Inc. (NASDAQ:EXEL) might be a better candidate to consider taking a long position in.

Disclosure: none