Is IBKR Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Interactive Brokers Group, Inc. (NASDAQ:IBKR).

Is IBKR stock a buy? Hedge fund interest in Interactive Brokers Group, Inc. (NASDAQ:IBKR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that IBKR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Paycom Software Inc (NYSE:PAYC), Sun Life Financial Inc. (NYSE:SLF), and Li Auto Inc. (NASDAQ:LI) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding Interactive Brokers Group, Inc. (NASDAQ:IBKR).

Do Hedge Funds Think IBKR Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IBKR over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Bares Capital Management, managed by Brian Bares, holds the biggest position in Interactive Brokers Group, Inc. (NASDAQ:IBKR). Bares Capital Management has a $334.9 million position in the stock, comprising 6.2% of its 13F portfolio. Coming in second is Cantillon Capital Management, led by William von Mueffling, holding a $151 million position; 1.1% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Robert Joseph Caruso’s Select Equity Group, Quincy Lee’s Ancient Art (Teton Capital) and David Fear’s Thunderbird Partners. In terms of the portfolio weights assigned to each position Bronte Capital allocated the biggest weight to Interactive Brokers Group, Inc. (NASDAQ:IBKR), around 12.41% of its 13F portfolio. Ancient Art (Teton Capital) is also relatively very bullish on the stock, designating 11.32 percent of its 13F equity portfolio to IBKR.

Since Interactive Brokers Group, Inc. (NASDAQ:IBKR) has faced falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that elected to cut their entire stakes last quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dropped the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $2 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund said goodbye to about $1.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Interactive Brokers Group, Inc. (NASDAQ:IBKR). These stocks are Paycom Software Inc (NYSE:PAYC), Sun Life Financial Inc. (NYSE:SLF), Li Auto Inc. (NASDAQ:LI), StoneCo Ltd. (NASDAQ:STNE), Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), and Delta Air Lines, Inc. (NYSE:DAL). This group of stocks’ market caps match IBKR’s market cap.

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As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1071 million. That figure was $1109 million in IBKR’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 19 bullish hedge fund positions. Interactive Brokers Group, Inc. (NASDAQ:IBKR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBKR is 39.2. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on IBKR as the stock returned 27.2% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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

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