Baron Funds: “MarketAxess (MKTX) Will Be the Prime Beneficiary of the Secular Shift to Electronic Trading”

Baron Funds, an asset management firm, published its “Baron FinTech Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 16.79% was delivered by the fund’s institutional shares for the Q2 of 2021, outperforming the S&P 500 Index, which appreciated 8.55%, and the FactSet Global FinTech Index which rose 5.40% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Baron Funds, the fund mentioned MarketAxess Holdings Inc. (NASDAQ: MKTX) and discussed its stance on the firm. MarketAxess Holdings Inc. is a United States-based financial services company with an $18.05 billion market capitalization. MKTX delivered a -16.71% return since the beginning of the year, while its 12-month returns are up by 4.57%. The stock closed at $475.22 per share on September 3, 2021.

Here is what Baron Funds has to say about MarketAxess Holdings Inc. in its Q2 2021 investor letter:

MarketAxess Holdings Inc. operates the leading electronic platform for corporate bond trading. Shares fell due to a slowdown in trading activity, particularly against last year’s pandemic-driven spike. Market conditions were unfavorable due to lower volatility and narrower credit spreads. MarketAxess continued to increase market share, but share gains are typically slimmer during periods of low market volatility. We continue to own the stock because we believe MarketAxess will be the prime beneficiary of the secular shift to electronic trading in the corporate bond market.”

Source: pexels

Based on our calculations, MarketAxess Holdings Inc. (NASDAQ: MKTX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MKTX was in 31 hedge fund portfolios at the end of the first half of 2021, compared to 34 funds in the previous quarter. MarketAxess Holdings Inc. (NASDAQ: MKTX) delivered a 5.55% return in the past 3 months.

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 S&P 500 ETFs by 115 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 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.

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