CME Group (CME) in Upslope 2024 Q3

Strategic Positioning Amidst Market Volatility

Apr 14, 2025

Summary

Leading operator of global derivatives exchanges with a focus on interest rates, commodities, equities, and FX.
Holds a monopoly-like position in key products due to the unique nature of derivatives market structure.
Faces exaggerated worries about new competition and the end of the interest rate hiking cycle.
Shares have lagged peers over the past 1/3/5 years, presenting a reasonable valuation opportunity.
Key risks include potential for FMX volumes to improve significantly and large-scale M&A.

In the Upslope 2024 Q3 fund letter, CME Group (CME, Financial) was highlighted as a new long position, reflecting the fund's strategic focus on durable, monopoly-like businesses within the financial exchange sector. Despite being relatively out of favor compared to peers, CME's strong market position and reasonable valuation make it an attractive investment opportunity.

"CME is the 'out of favor' exchange today: shares have materially lagged peers over the past 1/3/5 years and are reasonably valued today. Over the past 10 years shares have rarely been cheaper on a forward earnings basis. This, despite CME being in a strong position to benefit from continued interest rate volatility and ever-expanding U.S. government debt issuance, as well as general commodity volatility." — Upslope 2024 Q3 Fund Letter

Read full letter at gurufocus Upslope 2024 Q3 page.

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