Tradeweb is one of our top 20 positions in the WAM Global (ASX: WGB) investment portfolio. The company is a global leader in building and operating electronic marketplaces for its network of institutional, wholesale, retail and corporate clients across a range of asset classes including rates, credit, money markets and equities. Tradeweb’s business collects a fee from matching buyers and sellers of securities.
We are attracted to the multi-year earnings outlook for Tradeweb as the business is well positioned to capitalise on the inevitable electronification of fixed income markets. The fixed income market is expansive and growing, and we expect trading volume growth to be driven by the expanding government debt pool and growing corporate debt outstanding. This market is still in its early stages of becoming electronified with phone trading still accounting for approximately 35% to 40% of U.S. Treasury security trading and even higher for corporate bonds.
As a team, we have witnessed and owned names such as Chicago Mercantile Exchange (NASDAQ: CME) and Intercontinental Exchange (NYSE: ICE) that have benefitted from this electronification playbook in differing asset classes including options and futures and we are confident that there is plenty of value to be realised by the leading players. Tradeweb is taking steps with new protocols, automation and workflow solutions to provide liquidity pools and help push forward the pace of this transition.
In addition to the longer-term opportunity, the business is enjoying strong earnings momentum on the back of cyclical tailwinds. Tradeweb has highlighted strong client engagement in response to the current macroeconomic backdrop, where there are debates around the timing and magnitude of interest rate cuts. This has led to increased market volatility and security trading volumes, driving strong revenue growth for Tradeweb. The Company has a strong management team who have executed their business strategy well and have prudently managed expenses. This gives us confidence in the ability for the business to increase its operating margins as well and grow earnings in the mid-teens.
