Upslope Capital Management, an investment management firm, released its third-quarter 2024 investor letter. A copy of the letter can be downloaded here. Q3 was a near-ideal environment for Upslope’s investment style, so the fund returned +14.8% (net) in Q3 compared to +6.8% and +2.3% for the S&P Midcap 400 ETF (MDY) and HFRX Equity Hedge Index, respectively. YTD, the fund’s return was +18.1% (net) compared to +13.2% and +7.5% returns, respectively, for the indexes. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Upslope Capital Management highlighted stocks like CME Group Inc. (NASDAQ:CME) in the third quarter 2024 investor letter. Headquartered in Chicago, Illinois, CME Group Inc. (NASDAQ:CME) operates contract markets for the trading of futures and options on futures contracts. The one-month return of CME Group Inc. (NASDAQ:CME) was 5.77%, and its shares gained 6.89% of their value over the last 52 weeks. On October 18, 2024, CME Group Inc. (NASDAQ:CME) stock closed at $228.32 per share with a market capitalization of $82.217 billion.
Upslope Capital Management stated the following regarding CME Group Inc. (NASDAQ:CME) in its Q3 2024 investor letter:
“The Fund added several new longs – CME Group Inc. (NASDAQ:CME), CompoSecure, and Mitsubishi Heavy Industries – most significantly during the early August swoon. Despite markets sitting near all-time highs, I still see pockets of value on the long side. Naturally, there appear to be ample opportunities for shorts.
CME Group is a leading operator of global derivatives exchanges. Key end markets include interest rates (34% of transaction/clearing fees in 2023), energy + other commodities (31% combined), equities (23%), and FX (4%). Upslope’s thesis is simple: CME is an attractive business that has been relatively out of favor vs. peers due to exaggerated worries about new competition and the end of the interest rate hiking cycle.
The financial exchange sector is comprised of durable, monopoly-like businesses, and has a history of predictable mean-reversion. Exchange stocks come in and out of favor, as investors extrapolate short-term issues and opportunities (not unlike other sectors, but I see this space as more predictable than most). 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.”
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CME Group Inc. (NASDAQ:CME) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 59 hedge fund portfolios held CME Group Inc. (NASDAQ:CME) at the end of the second quarter which was 60 in the previous quarter. While we acknowledge the potential of CME Group Inc. (NASDAQ:CME) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed CME Group Inc. (NASDAQ:CME) and shared the list of cryptocurrency stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.