Is MarketAxess (MKTX) A Smart Long-Term Buy?

Weitz Investment Management, an investment management firm, published its “Hickory Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of +5.26% was recorded by the fund in the second quarter of 2021, underperforming its Russell Midcap benchmark that delivered a +7.50% return. 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 Weitz Investment Management, 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 a $16.4 billion market capitalization. MKTX delivered a -24.80% return since the beginning of the year, while its 12-month returns are down by -7.54%. The stock closed at $432.08 per share on September 10, 2021.

Here is what Weitz Investment Management has to say about MarketAxess Holdings Inc. in its Q2 2021 investor letter:

“Our two portfolio additions in the quarter, (which includes) MarketAxess, are strong examples of our QuaD approach in action. MarketAxess is the leading electronic trading platform (ETP) for corporate bonds. Our fixed income teammates are long-time, satisfied clients, so we know the core service well. Although ETP market share has increased significantly in recent years, most trades are still executed through legacy, voice-based systems. For their part, MarketAxess maintains dominant (~80%) market share in the electronic trading of U.S. investment-grade, U.S. high-yield, and emerging market corporate and sovereign bonds, but electronic trading comprises a minority of the overall market activity. Electronic trading improves liquidity and efficiency in the market, advantages that particularly shine during periods of market duress (historically demonstrated by accelerated market share gains). With a long runway of continued “electronification” in their core markets and potential adjacent asset classes to meaningfully enter, we see a long runway for growth.”


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 -4.88% 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.