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Hedge Funds Have Never Been This Bullish On MarketAxess Holdings Inc. (MKTX)

How do we determine whether MarketAxess Holdings Inc. (NASDAQ:MKTX) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

MarketAxess Holdings Inc. (NASDAQ:MKTX) has seen an increase in hedge fund interest in recent months. MKTX was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with MKTX holdings 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 Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the recent hedge fund action surrounding MarketAxess Holdings Inc. (NASDAQ:MKTX).

How have hedgies been trading MarketAxess Holdings Inc. (NASDAQ:MKTX)?

Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MKTX over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

MKTX_dec2019

More specifically, Renaissance Technologies was the largest shareholder of MarketAxess Holdings Inc. (NASDAQ:MKTX), with a stake worth $235.2 million reported as of the end of September. Trailing Renaissance Technologies was GuardCap Asset Management, which amassed a stake valued at $73 million. Arrowstreet Capital, Citadel Investment Group, 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 5.37% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to MKTX.

With a general bullishness amongst the heavyweights, specific money managers have jumped into MarketAxess Holdings Inc. (NASDAQ:MKTX) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most valuable position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Two Sigma Advisors had $7.5 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also made a $2.9 million investment in the stock during the quarter. The other funds with brand new MKTX positions are Minhua Zhang’s Weld Capital Management, Joel Greenblatt’s Gotham Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks similar to MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Leidos Holdings Inc (NYSE:LDOS), Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), and Paycom Software Inc (NYSE:PAYC). All of these 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
LDOS 24 439384 1
DRE 16 170834 -7
STE 28 388702 6
PAYC 31 413981 7
Average 24.75 353225 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $470 million in MKTX’s case. Paycom Software Inc (NYSE:PAYC) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on MKTX as the stock returned 23.5% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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