I'm going to be adding to my position of TMX Group shortly. For those that aren't familiar with this company; it used to be called the TSX Group. Sound familiar now? ;)
TMX owns and operates the Toronto Stock Exchange, the TSX Venture as well as a handful of other commodity exchanges in North America. What's interesting to me as an investor; is that virtually every single publicly traded company in Canada is a client of the TMX Group. To list your Canadian company on the stock market, you have to first apply to TMX, pay an annual fee, as well as commissions.
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I'm an advocate of "going straight to the source" so to speak. I like buying ETFs such as the iShares "TSX 60 Index Fund" (XIU in Toronto) which is a stock that holds the top 60 securities listed on the TSX. Rather than picking and choosing individual equities for my core holdings, I can buy this one ticker and hold them all, weighted equally to the exchange. (We'll talk about my XIU strategy another day)
Couldn't help but notice a few weeks back that the TMX group not only fared better than the exchange itself during the crash in late '08, but it actually outperformed the entire market by almost 300% since 2002! This chart shows TMXs performance from November 2002 to today in blue, with a gain of 217% over that period. Below it in red, is the Toronto Stock Exchange's overall performance over the same period; a gain of only 77%.
(If we factor out the 2008 crash, and only look to the end of 2007, TMX actually beat the TSX by nearly 400%)
Had you owned the company that actually owns the exchange, rather than the exchange itself... you would have made almost triple the return over the past 7 years. Talk about going to the source!
To me this is kind of like bypassing the retailer (individual companies listed), bypassing the wholesaler, (the market itself) and going straight to the manufacturer (TMX). Skip the middleman altogether.
Oh, and did I mention TMX currently pays a dividend of almost 5%??? It's ratios are all good, they're making money, and they've averaged a net profit margin of over 30% the last 5 years. The industry average is less than 6%, so they're doing something right.
They generate revenue in three ways - took this from Wiki:
The TMX group derives revenues from 3 sources:
- charge companies an annual fee to list on any of the 3 exchanges and to maintain that listing. Major financial institutions also pay a fee to the TSX group to become a TSX member firm.
- charge member firms a commission on all trades executed on the exchanges.
- sell real time and historical market data, trading products, and licensing revenues from the use of its exchange indices.
Each of these activities is linked to the others in a manner that supports the growth of them all: Increased trading activity creates greater liquidity and generates data. More liquid markets attract new listings and participation by brokerage firms and investors, and New listings generate more trading and market data.
Talk about win-win! ...win, win, win.
So for now, that's where you'll find some of my 'sideline cash' that I know all you scared investors have collecting dust in your savings and brokerage accounts.
Happy trading!
-B
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