Were These Hedge Funds Wrong About Tradeweb Markets Inc. (TW)?

Is Tradeweb Markets Inc. (NASDAQ:TW) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Tradeweb Markets Inc. (NASDAQ:TW) a bargain? Investors who are in the know were in an optimistic mood. The number of long hedge fund positions increased by 3 recently. Tradeweb Markets Inc. (NASDAQ:TW) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that TW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

If you’d ask most traders, hedge funds are assumed to be unimportant, old investment vehicles of the past. While there are over 8000 funds with their doors open today, We choose to focus on the bigwigs of this club, about 850 funds. Most estimates calculate that this group of people preside over the majority of all hedge funds’ total asset base, and by monitoring their finest equity investments, Insider Monkey has discovered various investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Robert Pohly of Samlyn Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to analyze the recent hedge fund action regarding Tradeweb Markets Inc. (NASDAQ:TW).

How have hedgies been trading Tradeweb Markets Inc. (NASDAQ:TW)?

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TW over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is TW A Good Stock To Buy?

Among these funds, Alkeon Capital Management held the most valuable stake in Tradeweb Markets Inc. (NASDAQ:TW), which was worth $90.7 million at the end of the third quarter. On the second spot was Parsifal Capital Management which amassed $41.5 million worth of shares. Two Sigma Advisors, Harbor Spring Capital, and Samlyn Capital 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 12.29% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, designating 4.09 percent of its 13F equity portfolio to TW.

As one would reasonably expect, key hedge funds have jumped into Tradeweb Markets Inc. (NASDAQ:TW) headfirst. Columbus Circle Investors, managed by Principal Global Investors, established the most valuable position in Tradeweb Markets Inc. (NASDAQ:TW). Columbus Circle Investors had $19.5 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $4.5 million investment in the stock during the quarter. The following funds were also among the new TW investors: Noam Gottesman’s GLG Partners, Qing Li’s Sciencast Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to Tradeweb Markets Inc. (NASDAQ:TW). These stocks are Mid America Apartment Communities Inc (NYSE:MAA), Liberty Global plc (NASDAQ:LBTYA), International Flavors & Fragrances Inc (NYSE:IFF), Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), EXACT Sciences Corporation (NASDAQ:EXAS), and Pinterest, Inc. (NYSE:PINS). All of these stocks’ market caps resemble TW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MAA 30 503965 4
LBTYA 29 1048280 -1
IFF 31 234080 3
DRE 19 102859 3
STE 40 545240 5
EXAS 43 993223 9
PINS 53 1067483 15
Average 35 642161 5.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $347 million in TW’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 19 bullish hedge fund positions. Tradeweb Markets Inc. (NASDAQ:TW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TW is 54.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately TW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TW investors were disappointed as the stock returned -6.2% since the end of June (through 10/30) 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.