At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Tradeweb Markets Inc. (NASDAQ:TW) makes for a good investment right now.
Is Tradeweb Markets Inc. (NASDAQ:TW) an exceptional investment today? Money managers are turning bullish. The number of long hedge fund bets improved by 37 recently. Our calculations also showed that TW isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the latest hedge fund action regarding Tradeweb Markets Inc. (NASDAQ:TW).
How are hedge funds trading Tradeweb Markets Inc. (NASDAQ:TW)?
At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 37 from the previous quarter. The graph below displays the number of hedge funds with bullish position in TW over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Tradeweb Markets Inc. (NASDAQ:TW), which was worth $63.2 million at the end of the second quarter. On the second spot was Sirios Capital Management which amassed $61.2 million worth of shares. Moreover, Coatue Management, Third Point, and Senator Investment Group were also bullish on Tradeweb Markets Inc. (NASDAQ:TW), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were breaking ground themselves. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, established the largest position in Tradeweb Markets Inc. (NASDAQ:TW). Alkeon Capital Management had $63.2 million invested in the company at the end of the quarter. John Brennan's Sirios Capital Management also made a $61.2 million investment in the stock during the quarter. The following funds were also among the new TW investors: Philippe Laffont's Coatue Management, Dan Loeb's Third Point, and Doug Silverman and Alexander Klabin's Senator Investment Group.
Let's now take a look at hedge fund activity in other stocks similar to Tradeweb Markets Inc. (NASDAQ:TW). These stocks are Reinsurance Group of America Inc (NYSE:RGA), Invesco Ltd. (NYSE:IVZ), Carvana Co. (NYSE:CVNA), and Cabot Oil & Gas Corporation (NYSE:COG). This group of stocks' market valuations are closest to TW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGA,26,473703,3 IVZ,20,210595,-4 CVNA,45,1801168,4 COG,37,932105,5 Average,32,854393,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $854 million. That figure was $490 million in TW's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Invesco Ltd. (NYSE:IVZ) is the least popular one with only 20 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TW were disappointed as the stock returned -15.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.