Many investors, including Carl Icahn or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Markit Ltd (NASDAQ:MRKT) changed recently.
Markit Ltd (NASDAQ:MRKT) investors should be aware of a decrease in support from the world’s most elite money managers recently. At the end of this article we will also compare MRKT to other stocks, including iShares MSCI ACWI Index Fund (NASDAQ:ACWI), Regency Centers Corp (NYSE:REG), and Columbia Pipeline Group Inc (NYSE:CPGX) to get a better sense of its popularity.
According to most investors, hedge funds are assumed to be unimportant, outdated financial tools of the past. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this club, about 700 funds. These investment experts preside over the majority of all hedge funds’ total asset base, and by observing their highest performing picks, Insider Monkey has figured out various investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Keeping this in mind, we’re going to review the new action surrounding Markit Ltd (NASDAQ:MRKT).
How have hedgies been trading Markit Ltd (NASDAQ:MRKT)?
Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 24% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Platinum Asset Management, managed by Kerr Neilson, holds the number one position in Markit Ltd (NASDAQ:MRKT). The fund reportedly holds a $67.3 million stake in the company, comprising 1.8% of its 13F portfolio. Coming in second is Tudor Investment Corp, led by Paul Tudor Jones, holding a $29.7 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Sahm Adrangi’s Kerrisdale Capital, Matthew Iorio’s White Elm Capital and D. E. Shaw’s D E Shaw.
Due to the fact that Markit Ltd (NASDAQ:MRKT) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Shane Finemore’s Manikay Partners cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $23 million in stock, and David Rodriguez-Fraile’s BlueMar Capital Management was right behind this move, as the fund sold off about $4 million worth of MRKT shares. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Markit Ltd (NASDAQ:MRKT). We will take a look at iShares MSCI ACWI Index Fund (NASDAQ:ACWI), Regency Centers Corp (NYSE:REG), Columbia Pipeline Group Inc (NYSE:CPGX), and Lamar Advertising Co (NASDAQ:LAMR). This group of stocks’ market valuations are similar to MRKT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACWI | 5 | 82636 | -3 |
| REG | 7 | 54750 | -2 |
| CPGX | 25 | 354545 | 22 |
| LAMR | 26 | 463611 | -5 |
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 $239 million. That figure was $184 million in MRKT’s case. Lamar Advertising Co (NASDAQ:LAMR) is the most popular stock in this table. On the other hand iShares MSCI ACWI Index Fund (NASDAQ:ACWI) is the least popular one with only 5 bullish hedge fund positions. Markit Ltd (NASDAQ:MRKT) is not the most popular stock in this group, but hedge fund interest is only average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LAMR might be a better candidate to consider a long position.