The CME Group is the official name of the Chicago Mercantile Exchange, one of the most well-known derivatives marketplaces in the world. The CME Group is based in Chicago. It operates exchanges that enable businesses, suppliers, and investors to trade interest rate, equity index, currency, commodities, metals, and energy derivatives. The CME group went public in 2002 but was founded in the year 1898. The CME Group merged with CBOT Holdings in 2007 and Nymex Holdings in 2008. Interestingly, the ME Group also has a substantial 27% stake in S&P/Down Jones Indexes. If you are looking for exchange stocks, then clearly CME is one of the leading options.
If you are looking for the best financial stocks to invest in for the long-term, then the usual names that pop up generally include banks and asset management companies. Digital payment companies are getting popular, but they are classified more as fintech than pure financials. One lesser-known option could be exchange companies. Stock exchanges and derivatives exchanges can have some important moats around their business models. Such moats are excellent drivers of long term growth.
CME Group earns transaction fees for trades conducted on its exchanges. CME earns well over a billion dollars from such fees. There aren’t many derivatives exchanges in the US or the world. With limited players, the scale is an important metric. Companies that have reached a significant size can carry out transactions at a fast speed and with a low cost. Secondly, trading tends to be somewhat recession-proof. There may be ups and downs as volatility changes, but the trading activity does not drop as significantly as footfalls do at a movie theatre during a pandemic.
What Has Been The Stock Performance?
CME Group’s stock closed at $180 on 28th December, up 3% over the preceding 30 days. The stock traded at a 1.88% dividend yield, which is an added bonus. Over a longer horizon, CME Group’s stock has risen more than 2X, from $83 to $180, over a 5-year period. However, CME’s stock is down 10% for the year 2020.