Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards MarketAxess Holdings Inc. (NASDAQ:MKTX).
MarketAxess Holdings Inc. (NASDAQ:MKTX) investors should pay attention to an increase in support from the world's most elite money managers of late. Our calculations also showed that MKTX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
If you'd ask most stock holders, hedge funds are assumed to be worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at present, Our researchers look at the upper echelon of this club, around 750 funds. These investment experts oversee the lion's share of all hedge funds' total capital, and by keeping an eye on their inimitable equity investments, Insider Monkey has uncovered many investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_746830" align="aligncenter" width="1613"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to analyze the key hedge fund action surrounding MarketAxess Holdings Inc. (NASDAQ:MKTX).
Hedge fund activity in MarketAxess Holdings Inc. (NASDAQ:MKTX)
At Q3's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MKTX over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of MarketAxess Holdings Inc. (NASDAQ:MKTX), with a stake worth $235.2 million reported as of the end of September. Trailing Renaissance Technologies was GuardCap Asset Management, which amassed a stake valued at $73 million. Arrowstreet Capital, Citadel Investment Group, and Royce & Associates 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 GuardCap Asset Management allocated the biggest weight to MarketAxess Holdings Inc. (NASDAQ:MKTX), around 5.37% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to MKTX.
As aggregate interest increased, key hedge funds have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the biggest position in MarketAxess Holdings Inc. (NASDAQ:MKTX). Two Sigma Advisors had $7.5 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe's Voleon Capital also initiated a $2.9 million position during the quarter. The following funds were also among the new MKTX investors: Minhua Zhang's Weld Capital Management, Joel Greenblatt's Gotham Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks similar to MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Leidos Holdings Inc (NYSE:LDOS), Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), and Paycom Software Inc (NYSE:PAYC). This group of stocks' market valuations resemble MKTX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LDOS,24,439384,1 DRE,16,170834,-7 STE,28,388702,6 PAYC,31,413981,7 Average,24.75,353225,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $470 million in MKTX's case. Paycom Software Inc (NYSE:PAYC) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on MKTX as the stock returned 80.7% in 2019 and outclassed the market by an even larger margin. 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.