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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Tradeweb Markets Inc. (NASDAQ:TW), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Tradeweb Markets Inc. (NASDAQ:TW) a buy, sell, or hold? Money managers are getting less bullish. The number of long hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that TW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Louis Bacon Moore of Moore Capital
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 we’re going to take a glance at the key hedge fund action surrounding Tradeweb Markets Inc. (NASDAQ:TW).
What have hedge funds been doing with Tradeweb Markets Inc. (NASDAQ:TW)?
At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in TW a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Senator Investment Group was the largest shareholder of Tradeweb Markets Inc. (NASDAQ:TW), with a stake worth $69.5 million reported as of the end of September. Trailing Senator Investment Group was Alkeon Capital Management, which amassed a stake valued at $66.5 million. Millennium Management, Samlyn Capital, and Junto Capital Management 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 Parsifal Capital Management allocated the biggest weight to Tradeweb Markets Inc. (NASDAQ:TW), around 5.18% of its 13F portfolio. White Elm Capital is also relatively very bullish on the stock, designating 4.97 percent of its 13F equity portfolio to TW.
Due to the fact that Tradeweb Markets Inc. (NASDAQ:TW) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Philippe Laffont’s Coatue Management cut the largest position of the 750 funds tracked by Insider Monkey, valued at close to $26.5 million in stock, and Dan Loeb’s Third Point was right behind this move, as the fund sold off about $15.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tradeweb Markets Inc. (NASDAQ:TW) but similarly valued. These stocks are Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), Camden Property Trust (NYSE:CPT), Huntington Ingalls Industries Inc (NYSE:HII), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). This group of stocks’ market caps resemble TW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBS | 12 | 446923 | 1 |
| CPT | 31 | 471165 | 9 |
| HII | 22 | 596671 | 3 |
| CRWD | 48 | 613093 | 19 |
| Average | 28.25 | 531963 | 8 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $532 million. That figure was $567 million in TW’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is the least popular one with only 12 bullish hedge fund positions. Tradeweb Markets Inc. (NASDAQ:TW) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on TW as the stock returned -16% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
