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CME Group (CME) Has Fallen 22% in Last One Year, Underperforms Market

Alex Smith
·3 mins read

If you are looking for the best ideas for your portfolio you may want to consider some of VGI Partners top stock picks. VGI Partners, an investment management firm, is bullish on CME Group Inc. (NASDAQ:CME) stock. In its FY 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on CME Group Inc. (NASDAQ:CME) stock. CME Group Inc. (NASDAQ:CME) is the world's largest financial derivatives exchange, and trades in asset classes that include agricultural products, currencies, energy, interest rates, metals, and stock indexes.

On July 30, 2019, VGI Partners had released its FY 2019 investor letter. CME Group Inc. (NASDAQ:CME) stock has posted a return of -22.0% in the trailing one year period, underperforming the S&P 500 Index which returned 11.4% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, CME Group Inc. (NASDAQ:CME) stock has fallen by 16.9%.

In its FY 2019 investor letter, the firm reported that VGI Partners Global Investments Limited generated a 10.2% net return. Let’s take a look at comments made by VGI Partners about CME Group Inc. (NASDAQ:CME) stock in the Q2 2019 investor letter.

"CME Group (NASDAQ: CME) is currently VG1’s largest investment with a 9.5% weighting. CME contributed +2.4% to performance for the twelve months to 30 June 2019, with the share price increasing 18.4% over the course of the year. In addition, CME paid us five dividends totalling $4.65 per share, for a dividend yield of 2.4%.

CME is a derivatives exchange with an effective monopoly in the exchange trading of US interest rate derivatives and a dominant position in the trading of global commodities, foreign exchange, equity index and energy derivatives.

We believe that CME’s interest rate volumes (which contribute approximately 30% of the company’s revenues) are likely to substantially increase when interest rate volatility returns. Recent volumes remain robust despite a fairly benign interest rate outlook. Furthermore, we believe the business model is extremely well-positioned for any pick-up in inflation.

CME has consistently demonstrated shareholder-friendly capital allocation policies, returning excess cash to shareholders in the form of increased dividends and share buybacks."

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solarseven/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on CME Group Inc. (NASDAQ:CME) stock decreased by about 3% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with CME's growth potential. Our calculations showed that CME Group Inc. (NASDAQ:CME) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.