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Did Hedge Funds Make The Right Call On MarketAxess Holdings Inc. (MKTX) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMarketAxess Holdings Inc. (NASDAQ:MKTX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in MarketAxess Holdings Inc. (NASDAQ:MKTX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MKTX to other stocks including Ameriprise Financial, Inc. (NYSE:AMP), Aptiv PLC (NYSE:APTV), and Hewlett Packard Enterprise Company (NYSE:HPE) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action regarding MarketAxess Holdings Inc. (NASDAQ:MKTX).

What does smart money think about MarketAxess Holdings Inc. (NASDAQ:MKTX)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in MKTX a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is MKTX A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the most valuable position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Renaissance Technologies has a $399.5 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is GuardCap Asset Management, led by Guardian Capital, holding a $78.4 million position; 4.5% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position GuardCap Asset Management allocated the biggest weight to MarketAxess Holdings Inc. (NASDAQ:MKTX), around 4.53% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, dishing out 0.99 percent of its 13F equity portfolio to MKTX.

Because MarketAxess Holdings Inc. (NASDAQ:MKTX) has witnessed falling interest from hedge fund managers, we can see that there is a sect of fund managers that slashed their full holdings heading into Q4. It’s worth mentioning that Matthew Hulsizer’s PEAK6 Capital Management dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising about $4.3 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dropped about $3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Ameriprise Financial, Inc. (NYSE:AMP), Aptiv PLC (NYSE:APTV), Hewlett Packard Enterprise Company (NYSE:HPE), and Twilio Inc. (NYSE:TWLO). This group of stocks’ market values are closest to MKTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMP 26 605759 -11
APTV 33 679352 -13
HPE 29 641977 -12
TWLO 52 1549546 -8
Average 35 869159 -11

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $869 million. That figure was $712 million in MKTX’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Ameriprise Financial, Inc. (NYSE:AMP) is the least popular one with only 26 bullish hedge fund positions. MarketAxess Holdings Inc. (NASDAQ:MKTX) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MKTX as the stock returned 50.8% during the second quarter and outperformed the market by an even larger margin.

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