We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether MarketAxess Holdings Inc. (NASDAQ:MKTX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
MarketAxess Holdings Inc. (NASDAQ:MKTX) was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2019. MKTX investors should be aware of an increase in enthusiasm from smart money of late. There were 26 hedge funds in our database with MKTX positions at the end of the previous quarter. Our calculations also showed that MKTX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
To most investors, hedge funds are perceived as unimportant, old financial tools of the past. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the upper echelon of this club, approximately 850 funds. It is estimated that this group of investors watch over bulk of the smart money’s total capital, and by watching their best investments, Insider Monkey has formulated a few investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the recent hedge fund action encompassing MarketAxess Holdings Inc. (NASDAQ:MKTX).
Hedge fund activity in MarketAxess Holdings Inc. (NASDAQ:MKTX)
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MKTX over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of MarketAxess Holdings Inc. (NASDAQ:MKTX), with a stake worth $362.4 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $111.8 million. GuardCap Asset Management, D E Shaw, and Royce & Associates 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 GuardCap Asset Management allocated the biggest weight to MarketAxess Holdings Inc. (NASDAQ:MKTX), around 4.14% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to MKTX.
As one would reasonably expect, specific money managers have jumped into MarketAxess Holdings Inc. (NASDAQ:MKTX) headfirst. Bridgewater Associates, managed by Ray Dalio, created the most valuable position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Bridgewater Associates had $3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $2.4 million position during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Philippe Laffont’s Coatue Management, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MarketAxess Holdings Inc. (NASDAQ:MKTX) but similarly valued. We will take a look at Liberty Global plc (NASDAQ:LBTYA), Magellan Midstream Partners, L.P. (NYSE:MMP), CarMax Inc (NYSE:KMX), and Yandex NV (NASDAQ:YNDX). This group of stocks’ market caps are closest to MKTX’s market cap.
|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 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1080 million. That figure was $637 million in MKTX’s case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 16 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on MKTX as the stock returned -17.7% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.