In their Q3 2025 investor commentary, Magellan Investment Partners highlights CME Group through a “Stock Story” written by Investment Analyst Emma Williams. Magellan presents CME as a core defensive holding within the Magellan Global Fund, emphasizing it as the world’s leading derivatives marketplace. The commentary positions CME as an example of the highest-quality exchange businesses that operate as near-monopolies in key contracts, providing a natural hedge during periods of market volatility through its diversified operations across major asset classes including interest rates, equities, foreign exchange, and commodities.
Investment Highlight: CME Group Inc. ($CME)
Business Overview
- World’s leading derivatives marketplace
- Operates diversified exchange business across major asset classes: interest rates, equities, foreign exchange, and commodities
- Provides natural hedge during periods of market volatility
- Core defensive holding within Magellan Global Fund
Market Position and Quality Attributes
- Not all exchange businesses are created equal—derivative exchanges are amongst the highest quality
- Operates as near-monopoly in key contracts and proprietary benchmarks
- Significant network effects generated from liquidity, clearing, and benchmark status
- Near-monopoly creates capital efficiencies and substantial barriers to entry for potential competitors
- Deep liquidity provides tangible cost advantage to traders through tight bid-ask spreads
- Compelling cross-margining efficiencies continue to attract volumes
Performance Analysis
Record Financial Performance:
- 2024 was the best year in CME’s history
- Record-breaking results in first half of 2025
- Best-in-class profitability with operating margins reaching 68% in 2024
- Quality attributes have been critical in CME’s consistent and exceptional financial performance
Business Model – Thrives on Uncertainty:
- Business model thrives on uncertainty as market participants increasingly turn to derivatives to hedge risk
- Recent trading volumes bolstered by:
- Geopolitical instability in Ukraine, Russia, and the Middle East
- Shifting global supply chains
- Macroeconomic uncertainty
Operational Resiliency:
- Proven operational resiliency during extreme market stress
- Transferred record $32 billion in mark-to-market cash in single day following announcement of US tariffs in April 2025
- Up 45% on previous single-day record
- During heightened volatility (Liberation Day in April 2025), market participants fled to established exchanges like CME
Strategic Growth Initiatives
Structural Growth Drivers:
- Successful launch of new derivative products
- Creation of innovative platforms
- Expansion into international and retail markets
Retail Market Expansion:
- Retail customer base still minority business segment but shown rapid growth
- Aided by strategic partnerships with brokers like Robinhood
- Investment in education driving adoption
- Strong retail demand for contracts on gold and cryptocurrencies like Bitcoin and Ethereum
- Diversifies CME’s revenue streams while maintaining quality of earnings
Competitive Moat – FMX Challenge
FMX Futures Exchange Launch (September 2024):
- Latest competitor attempting to challenge CME’s attractive and resilient profit pool
- Backed by several major investment banks and market makers
- Attempting to challenge CME’s dominant position in interest rate futures
- Primary strategic differentiator: partnership with London Stock Exchange Group’s LCH Clearing Services (largest clearer of interest rate swaps)
- FMX argues partnership allows customers to achieve superior cost efficiencies by reducing collateral required
Results One Year After Launch:
- FMX has failed to gain meaningful traction
- Market share remains negligible
- Most trading activity likely incentivized
- CME’s deep liquidity continues to attract volumes through tangible cost advantage via tight bid-ask spreads and cross-margining efficiencies
- In periods of heightened volatility, market participants fled to established exchanges like CME
- Given strong view on CME’s quality attributes, Magellan expects CME to maintain dominance
- Views any share price weakness from competitive threat as buying opportunity for the Fund
Growth Outlook
- Well-placed to grow above GDP with high degree of confidence
- Beneficiary in current world of elevated uncertainty and volatility
Magellan Investment Partners views CME Group as a core defensive holding and the world’s leading derivatives marketplace that operates as a near-monopoly in key contracts through significant network effects from liquidity, clearing, and benchmark status that create capital efficiencies and substantial barriers to entry. The investment thesis centers on CME being amongst the highest-quality exchange businesses with best-in-class 68% operating margins, record 2024 performance followed by record-breaking first half 2025 results, a business model that thrives on uncertainty with recent volumes bolstered by geopolitical instability and macroeconomic uncertainty (transferred record $32 billion mark-to-market in single day during April 2025 tariffs, up 45% on previous record), and strategic growth initiatives including rapid retail expansion through partnerships with Robinhood and strong cryptocurrency contract demand diversifying revenue while maintaining earnings quality. With FMX Futures Exchange’s failure to gain meaningful traction one year after well-funded September 2024 launch by major investment banks—with market participants fleeing to CME during heightened volatility—Magellan views any competitive-threat-driven share price weakness as buying opportunities, expecting CME to maintain dominance and grow above GDP with high confidence as a beneficiary of elevated uncertainty and volatility.
