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Is MarketAxess Holdings Inc. (MKTX) Going to Burn These Hedge Funds?

Abigail Fisher

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about MarketAxess Holdings Inc. (NASDAQ:MKTX).

Is MarketAxess Holdings Inc. (NASDAQ:MKTX) the right investment to pursue these days? The best stock pickers are in a bullish mood. The number of long hedge fund positions increased by 3 lately. Our calculations also showed that MKTX 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.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

MKTX_oct2019

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 check out the recent hedge fund action surrounding MarketAxess Holdings Inc. (NASDAQ:MKTX).

How have hedgies been trading MarketAxess Holdings Inc. (NASDAQ:MKTX)?

At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the first quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in MKTX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Phill Gross, Adage Capital Management

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Renaissance Technologies has a $158.8 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $60 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and Cliff Asness's AQR Capital Management.

As one would reasonably expect, some big names have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the most valuable position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Adage Capital Management had $10.4 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $8.2 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Benjamin A. Smith's Laurion Capital Management, and Mike Vranos's Ellington.

Let's also examine hedge fund activity in other stocks similar to MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Atmos Energy Corporation (NYSE:ATO), Kansas City Southern (NYSE:KSU), Vornado Realty Trust (NYSE:VNO), and Elanco Animal Health Incorporated (NYSE:ELAN). This group of stocks' market caps resemble MKTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATO,14,397907,-6 KSU,26,370990,0 VNO,27,534294,-3 ELAN,27,520304,-6 Average,23.5,455874,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $456 million. That figure was $366 million in MKTX's case. Vornado Realty Trust (NYSE:VNO) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 14 bullish hedge fund positions. MarketAxess Holdings Inc. (NASDAQ:MKTX) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on MKTX, though not to the same extent, as the stock returned 2% during the third quarter and outperformed the market.

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

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