Today we are launching our next equity theme basket focusing on the financial trading industry as it has experienced a historic renaissance in terms of profitability, new clients, potentially a new lasting investor class. The main question is whether the good times will last.
The financial trading theme basket consists of 30 companies across institutional and retail brokerage, financial information, exchange and clearing, electronic bond platforms, and market-making with a combined value of $1.14trn. As the basket shows, the retail brokerage firms and exchanges have done very well the past year as the pandemic forced many people into lockdowns freeing up time for trading and investing, as sports betting and other leisure activities were impossible.
Morgan Stanley | Institutional brokerage | 154,413 | 9.0 | 62.1 | 10.5 | 254.5 |
Charles Schwab Corp/The | Multi brokerage | 132,718 | 23.3 | -2.5 | 10.0 | 171.7 |
Goldman Sachs Group Inc/The | Institutional brokerage | 124,571 | 14.5 | 122.2 | 9.5 | 137.1 |
S&P Global Inc | Financial information | 94,045 | 11.0 | 22.1 | 6.8 | 294.1 |
Hong Kong Exchanges & Clearing Ltd | Exchange & clearing | 75,805 | 28.5 | 44.9 | 16.0 | 179.5 |
CME Group Inc | Exchange & clearing | 72,526 | -11.4 | -19.5 | 2.7 | 161.4 |
Intercontinental Exchange Inc | Exchange & clearing | 66,243 | 12.0 | 2.9 | 13.4 | 142.5 |
Coinbase Global Inc | Exchange (crypto) | 59,290 | 139.3 | NA | 50.7 | NA |
London Stock Exchange Group PLC | Exchange & clearing | 57,007 | 5.6 | 8.2 | 18.5 | 207.1 |
CITIC Securities Co Ltd | Institutional brokerage | 44,790 | 14.3 | 25.7 | 23.0 | 31.9 |
MSCI Inc | Financial information | 40,038 | 9.6 | 19.6 | 1.5 | 587.0 |
Deutsche Boerse AG | Exchange & clearing | 32,825 | -0.7 | -9.4 | 10.0 | 118.4 |
Interactive Brokers Group Inc | Multi brokerage | 30,718 | 12.1 | 44.9 | 22.6 | 101.8 |
Nasdaq Inc | Exchange & clearing | 26,510 | 17.3 | 30.8 | 4.9 | 183.3 |
MarketAxess Holdings Inc | Electronic bond platform | 18,553 | 28.7 | 33.3 | 14.7 | 311.9 |
Tradeweb Markets Inc | Electronic bond platform | 18,875 | 13.1 | 33.9 | 5.2 | NA |
Raymond James Financial Inc | Institutional brokerage | 17,943 | 5.0 | 14.2 | 8.2 | 176.4 |
Japan Exchange Group Inc | Exchange & clearing | 12,542 | 7.8 | 8.0 | -11.2 | 88.5 |
LPL Financial Holdings Inc | Institutional brokerage | 12,520 | 7.0 | -13.8 | 13.5 | 607.3 |
Cboe Global Markets Inc | Exchange & clearing | 11,135 | 3.8 | 4.8 | 1.7 | 77.8 |
Euronext NV | Exchange & clearing | 7,051 | 17.5 | 19.7 | 14.4 | 185.8 |
Virtu Financial Inc | Market-making | 5,656 | 113.3 | 290.9 | 8.5 | 93.7 |
Avanza Bank Holding AB | Retail brokerage | 5,579 | 81.7 | 145.1 | 5.4 | 465.6 |
Nordnet AB publ | Retail brokerage | 4,700 | 56.9 | 162.7 | 28.8 | NA |
IG Group Holdings PLC | Retail brokerage | 4,690 | NA | NA | 6.3 | 59.3 |
flatexDEGIRO AG | Retail brokerage | 3,524 | 27.8 | 37.2 | 23.2 | 523.4 |
Swissquote Group Holding SA | Retail brokerage | 2,304 | 32.5 | 103.9 | 20.5 | 550.5 |
Monex Group Inc | Retail brokerage | 2,000 | 47.0 | 375.7 | 0.5 | 237.3 |
CMC Markets PLC | Retail brokerage | 1,961 | 110.5 | 560.8 | 8.0 | 141.9 |
Flow Traders | Market-making | 1,923 | 331.3 | 792.9 | 10.1 | 61.4 |
Source: Bloomberg and Saxo Group
The median revenue and EPS growth is currently 14.5% and 32.1% respectively showing the impact from the pandemic. The fastest growing financial trading company on revenue is Coinbase Global which just recently IPO’ed representing another important milestone for the cryptocurrency industry. Flow Traders, which started as a market-maker in ETFs, has posted the biggest increase in EPS as the ETF dislocation and widening of spreads were the biggest in ETFs compared to other financial instruments. In terms of five-year return, the institutional brokerage firm LPL Financial Holdings has done the best up 607%.
Strong performance for financial trading firms, but can it last?
The financial trading basket is the best performing basket in April and year-to-date (excluding the crypto basket which lives its own life) up 6.9% and 22.8% respectively as financial trading firms have posted strong earnings across the board. However, volatility is coming down again across many asset classes and volume is also in decline again so profits in 2021 could take a hit but still normalize at a higher level than before the pandemic. As with all our other baskets, the historic performance of 251% total return over five years is not an indicator of future returns. Our baskets are selected with the first criteria being whether a company provides good exposure or not, and secondly choosing the largest companies. This inherently creates a selection and survivorship bias in theme basket.