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Is Interactive Brokers Group, Inc. (IBKR) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think Interactive Brokers Group, Inc. (NASDAQ:IBKR) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Interactive Brokers Group, Inc. (NASDAQ:IBKR) investors should be aware of a decrease in hedge fund interest lately. IBKR was in 22 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with IBKR positions at the end of the previous quarter. Our calculations also showed that IBKR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the fresh hedge fund action encompassing Interactive Brokers Group, Inc. (NASDAQ:IBKR).

What does smart money think about Interactive Brokers Group, Inc. (NASDAQ:IBKR)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in IBKR a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is IBKR A Good Stock To Buy?

The largest stake in Interactive Brokers Group, Inc. (NASDAQ:IBKR) was held by Bares Capital Management, which reported holding $262.5 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $107.7 million position. Other investors bullish on the company included Ancient Art (Teton Capital), Select Equity Group, and Cat Rock Capital. In terms of the portfolio weights assigned to each position Ancient Art (Teton Capital) allocated the biggest weight to Interactive Brokers Group, Inc. (NASDAQ:IBKR), around 13.17% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, earmarking 9.46 percent of its 13F equity portfolio to IBKR.

Because Interactive Brokers Group, Inc. (NASDAQ:IBKR) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their entire stakes by the end of the first quarter. At the top of the heap, Peter S. Park’s Park West Asset Management dumped the largest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $28 million in stock. Avi Fruchter’s fund, Anavon Capital, also said goodbye to its stock, about $11.7 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Interactive Brokers Group, Inc. (NASDAQ:IBKR) but similarly valued. We will take a look at Fortis Inc. (NYSE:FTS), Wipro Limited (NYSE:WIT), Corteva, Inc. (NYSE:CTVA), and Rockwell Automation Inc. (NYSE:ROK). All of these stocks’ market caps match IBKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTS 15 347098 1
WIT 7 56972 -5
CTVA 36 509655 9
ROK 37 335488 -2
Average 23.75 312303 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $780 million in IBKR’s case. Rockwell Automation Inc. (NYSE:ROK) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Interactive Brokers Group, Inc. (NASDAQ:IBKR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately IBKR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IBKR investors were disappointed as the stock returned -1.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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