Is MarketAxess Holdings Inc. (MKTX) A Good Stock To Buy?

Hedge funds may not always be right, even collectively, but data shows that their consensus long positions have historically outperformed broader market benchmarks. For example, the Goldman Sachs’ VIP list, which includes the 50 stocks that appear the most often among hedge funds’ top-10 largest holdings, has beaten the S&P 500 gauge on a quarterly basis 64% of the time since 2001, including last year, when it delivered impressive 23% returns in a flat market. Meanwhile, Goldman Sachs’ list of the 20 ‘Most Concentrated’ stocks, which hedge funds own the highest percentage of in terms of the stock’s float, has gained 18% this year to the S&P 500’s 8% gains. Clearly, it’s worthwhile to pay attention to what hedge funds are buying, so let’s check out the latest 13F filing data to see what they think about MarketAxess Holdings Inc. (NASDAQ:MKTX) .

MarketAxess Holdings Inc. (NASDAQ:MKTX) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the third quarter of 2016. At the end of this article we will also compare MKTX to other stocks including Herbalife Ltd. (NYSE:HLF), Empresa Nacional de Electricidad S.A. (NYSE:EOCC), and CBOE Holdings, Inc (NASDAQ:CBOE) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Hedge fund activity in MarketAxess Holdings Inc. (NASDAQ:MKTX)

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, same as in the previous quarter. The graph below displays the number of hedge funds with bullish position in MKTX over the last 5 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 considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’ AQR Capital Management has the number one position in MarketAxess Holdings Inc. (NASDAQ:MKTX), worth close to $20.8 million. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $17.1 million position. Remaining professional money managers with similar optimism include James Parsons’ Junto Capital Management, D. E. Shaw’s D E Shaw and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. Intriguingly, Benjamin A. Smith’s Laurion Capital Management sold off the largest stake of the 700 funds followed by Insider Monkey, comprising about $11.6 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund dumped about $3.7 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Herbalife Ltd. (NYSE:HLF), Empresa Nacional de Electricidad S.A. (NYSE:EOCC), CBOE Holdings, Inc (NASDAQ:CBOE), and Fortinet Inc (NASDAQ:FTNT). This group of stocks’ market valuations resemble MKTX’s market valuation.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1.04 billion. That figure was $123 million in MKTX’s case. Herbalife Ltd. (NYSE:HLF) is the most popular stock in this table. On the other hand Empresa Nacional de Electricidad S.A. (NYSE:EOCC) is the least popular one with only 11 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HLF might be a better candidate to consider taking a long position in.

Disclosure: None