CME Group (CME) is the world’s leading derivatives marketplace and serves as a core defensive holding within the MFG Global Fund. CME operates a diversified exchange business across major asset classes – including interest rates, equities, foreign exchange and commodities – providing a natural hedge during periods of market volatility.
Not all exchange businesses are created equal. Derivative exchanges are amongst the highest quality, operating as a near monopoly in key contracts and proprietary benchmarks given the significant network effects generated from liquidity, clearing and benchmark status. This near-monopoly creates capital efficiencies and substantial barriers to entry for potential competitors.
These quality attributes we believe have been critical in CME’s consistent and exceptional financial performance. For CME, 2024 was the best year in its history, followed by record-breaking results in the first half of 2025. This strength is reflected in its best-in-class profitability, with operating margins reaching 68% in 2024. CME’s business model thrives on uncertainty, as market participants increasingly turn to derivatives to hedge risk. Recent trading volumes have been bolstered by geopolitical instability in Ukraine, Russia and the Middle East, shifting global supply chains and macroeconomic uncertainty. The firm has proven its operational resiliency during extreme market stress, notably transferring a record
US$32 billion in mark-to-market cash in a single day following the announcement of US tariffs in April 2025, up 45% on the previous single-day record.
In parallel with these cyclical tailwinds, CME has pursued strategic initiatives to drive structural growth. Key developments include the successful launch of new derivative products, the creation of innovative platforms and expansion into international and retail markets. While still a minority business segment, the retail customer base has shown rapid growth, aided by strategic partnerships with brokers like Robinhood and investment in education. This has led to strong retail demand for contracts on gold and cryptocurrencies like Bitcoin and Ethereum that, importantly, diversify CME’s revenue streams while maintaining the quality of earnings.
Given this attractive and resilient profit pool, new competitors continue to try their luck. The latest launch attempt, the FMX Futures Exchange, was launched in September 2024. With backing from several major investment banks and market makers, FMX is attempting to challenge CME’s dominant position in interest rate futures. FMX’s primary strategic differentiator is its partnership with the London Stock Exchange Group’s LCH Clearing Services, the largest clearer of interest rate swaps. FMX argues this partnership allows customers to achieve superior cost efficiencies by reducing the amount of collateral required.
A year after launch, FMX has failed to gain meaningful traction. Its market share remains negligible, with most of the trading activity likely incentivised. CME’s deep liquidity, which provides a tangible cost advantage to traders through tight bid-ask spreads and compelling cross-margining efficiencies, continues to attract volumes. Additionally, in periods of heightened volatility (for example, Liberation Day in April 2025), market participants fled to established exchanges like CME. Given our strong view on CME’s quality attributes, we expect CME to maintain its dominance and view any share price weakness from this competitive threat as a buying opportunity for the MFG Global Fund.
CME, thus, is well placed to grow above GDP with a high degree of confidence and is a beneficiary in the current world of elevated uncertainty and volatility.
By Emma Williams, Investment Analyst
Sources: Company filings
Important Information: This material has been produced by Magellan Asset Management Limited trading as MFG Asset Management (‘MFG Asset Management’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision.
Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain ‘forward-looking statements’. Actual events or results or the actual performance of an MFG Asset Management financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.
This material may include data, research and other information from third party sources. No guarantee is made that such information is accurate, complete or timely and no warranty is given regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. MFG Asset Management will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.
Further information regarding any benchmark referred to herein can be found at us.magellaninvestmentpartners.com/funds/benchmark-information/. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of MFG Asset Management. MFG Asset Management is a registered investment adviser. Registration as an investment adviser does not imply any level of skill or training. This material is not intended as an offer or solicitation for the purchase or sale of any securities, financial instrument or product or to provide financial services. It is not the intention of MFG Asset Management to create legal relations on the basis of information provided herein. Past performance does not guarantee future results. Where performance figures are shown net of fees charged to clients, the performance has been reduced by the amount of the highest fee charged to any client employing that particular strategy during the period under consideration. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Fees are available upon request and also may be found in Part II of MFG Asset Management's Form ADV. (080825-#US10)
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