At Insider Monkey, we pore over the filings of nearly 866 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 March 31st. In this article, we will use that wealth of knowledge to determine whether or not MarketAxess Holdings Inc. (NASDAQ:MKTX) makes for a good investment right now.
MarketAxess Holdings Inc. (NASDAQ:MKTX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 34 hedge funds’ portfolios at the end of March. Our calculations also showed that MKTX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare MKTX to other stocks including Coupa Software Incorporated (NASDAQ:COUP), Darden Restaurants, Inc. (NYSE:DRI), and Live Nation Entertainment, Inc. (NYSE:LYV) to get a better sense of its popularity.
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. 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 115 percentage points since March 2017 (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.
Michael Gelband of ExodusPoint Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to review the recent hedge fund action surrounding MarketAxess Holdings Inc. (NASDAQ:MKTX).
Do Hedge Funds Think MKTX Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position 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.
The largest stake in MarketAxess Holdings Inc. (NASDAQ:MKTX) was held by Renaissance Technologies, which reported holding $225.6 million worth of stock at the end of December. It was followed by GuardCap Asset Management with a $214.9 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position GuardCap Asset Management allocated the biggest weight to MarketAxess Holdings Inc. (NASDAQ:MKTX), around 3.88% of its 13F portfolio. Lakehouse Capital is also relatively very bullish on the stock, designating 3.61 percent of its 13F equity portfolio to MKTX.
Since MarketAxess Holdings Inc. (NASDAQ:MKTX) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers that elected to cut their entire stakes in the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management cut the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $21.6 million in stock. Andrew Dalrymple and Barry McCorkell’s fund, Aubrey Capital Management, also dumped its stock, about $5.6 million worth. These transactions 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 MarketAxess Holdings Inc. (NASDAQ:MKTX). These stocks are Coupa Software Incorporated (NASDAQ:COUP), Darden Restaurants, Inc. (NYSE:DRI), Live Nation Entertainment, Inc. (NYSE:LYV), Conagra Brands, Inc. (NYSE:CAG), United Airlines Holdings Inc (NYSE:UAL), Cheniere Energy, Inc. (NYSE:LNG), and Amcor plc (NYSE:AMCR). All of these stocks’ market caps are closest to MKTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COUP | 50 | 3702472 | -12 |
| DRI | 49 | 1315631 | 7 |
| LYV | 37 | 1325005 | -9 |
| CAG | 30 | 700335 | 2 |
| UAL | 38 | 1024160 | -14 |
| LNG | 40 | 2549760 | 2 |
| AMCR | 17 | 226541 | -2 |
| Average | 37.3 | 1549129 | -3.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1549 million. That figure was $672 million in MKTX’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 17 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 overall hedge fund sentiment score for MKTX is 60.8. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately MKTX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MKTX investors were disappointed as the stock returned -5.9% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Marketaxess Holdings Inc (NASDAQ:MKTX)
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Disclosure: None. This article was originally published at Insider Monkey.
