Overall, the banks, investment funds, real estate and insurance companies which make up the financials sector have had a difficult 2018. The sector has entered bear market territory in the last few weeks of 2018 by falling more than 20% from its 52-week high from January. This is all the more challenging a prospect for investors given that financials performed so well over the previous two years.
As the year progressed, 2018 saw the long-term realization and effects of many of the expectations that boosted the financials sector following the 2016 U.S. presidential election. Tax reform, for instance, was signed into law in the last few days of 2017, but its effects weren't felt until this year. Investors expecting continued Federal Reserve interest rate hikes also saw those expectations realized; the Fed hiked rates four times in 2018. Investors expecting Republican-led deregulation of the sector didn't see much to boost stock prices, particularly among big banks.
In spite of these negative pressures, there are some financials sector stocks which have managed to outperform their sector and the broader market. Below, we'll take a look at the top five performers in this sector. Stocks up for consideration in our list have market caps of at least $3 billion and are classified as "Financials" under the Global Industry Classification Standard (GICS). All figures below are for 2018 year-to-date as of December 17.
1. CME Group Inc. Class A (CME)
Market Cap: $67.5 billion
Performance as compared with the S&P 500: 30.2% (CME) vs. -5.6% (S&P 500)
2. Arthur J. Gallagher & Co. (AJG)
Market Cap: $13.9 billion
Performance as compared with the S&P 500: 19.2% (AJG) vs. -5.6% (S&P 500)
3. Aon plc (AON)
Market Cap: $37.4 billion
Performance as compared with the S&P 500: 15.3% (AON) vs. -5.6% (S&P 500)
4. MSCI Inc. Class A (MSCI)
Market Cap: $13.5 billion
Performance as compared with the S&P 500: 14.3% (MSCI) vs. -5.6% (S&P 500)
5. Nasdaq, Inc. (NDAQ)
Market Cap: $14.3 billion
Performance as compared with the S&P 500: 13.2% (NDAQ) vs. -5.6% (S&P 500)
CME Group Inc. Class A
Chicago-based CME Group Inc. operates the popular options and futures exchange commonly known by the same acronym. Besides that, CME also owns the Dow Jones financial and stock indexes. To be sure, 2018 was a big year for CME: the exchange began to offer bitcoin futures in late 2017, before the cryptocurrency space declined. Also, in December, the company announced that its average contracts per day had climbed to 21.7 million for November of 2018, up 21% year over year. The company also worked throughout 2018 to finalize its purchase of U.K.-based financial markets company NEX Group plc. Through this purchase, CME has been able to consolidate a range of exchanges to strengthen its position as an markets operator.
Arthur J. Gallagher & Co.
One of the largest insurance brokers in the world, Illinois-based Arthur J. Gallagher & Co. saw big gains over 2017. In Q3, for instance, AJG reported more than $1 billion in revenues, an increase of 12% year over year. In the same quarter, net earnings rose 30% over those from Q3 2017.
In 2018, AJG went on an agency buying spree. The company bought up Pointer Insurance Agency, Preston-Patterson, HMG-PCMS, Accompass Inc., Pavey Group, and others.
Throughout 2018, London-based professional services firm Aon plc has outperformed most other financials stocks. The company serves more than 100 countries around the world with risk, retirement and health consulting offerings. For the first three quarters of the year, revenue was up an astonishing 114% year over year as compared with 2017. Each of the companies segments, focused on commercial risk, reinsurance, retirement, health and analytics, has generated substantial revenue. It also completed about two dozen company integrations throughout 2018, proving that it continues to expand an innovate.
MSCI Inc. Class A
MSCI Inc. is an investment indexes and research company based in New York. The company has been a mainstay of the indexes space since at least the 1980s, with a focus on non-U.S. markets. Now, MSCI provides multiple analytics services and governance tools to hedge funds and institutional investors. All of the company's segments enjoyed strong revenue growth throughout most of 2018. In the third quarter of the year, for instance, MSCI saw revenue growth of 11% as compared with Q3 of 2017, as well as improvements in operational efficiency and subscription run rates. The company reported earnings per share for that quarter of $1.35, a 35% increase over the $1.00 offered one year earlier.
Thanks to the company's focus on customer satisfaction and innovation, MSCI Inc. was ranked in November among the top three companies in the Chartis 2019 RiskTech100, the research provider's study of the world’s major players in risk and compliance technology.
Nasdaq, Inc. operates the popular NASDAQ stock market as well as a group of European exchanges as well. Based in New York, the company has worked to continue to innovate in the last two years. In spring of 2017, for example, the company launched Nasdaq Ventures, a venture program targeting companies to help Nasdaq develop new market segments. The company's primary segments include listing services, information services, market segments and technology solutions. The earliest results of this venture focused on analytics, computing technology, and blockchain.
In 2018, Nasdaq continued to expand its focus as it acquired Quandl, a financial alternative data company. Nasdaq continues to enjoy a strong five-year average dividend growth rate of more than 25%. For the third quarter, the company reported organic sales up by 5% and an increase to EPS of 14% year over year. Total revenue actually decreased in the period, but that was a result of the divestiture of Nasdaq's public relations and digital media services businesses as well as the impact of changes in foreign exchange rates.