Investment Funds Lose Faith in Spread Betters, Post-IPO Bets Went Awry

CMC’s market value shed $260 million last week, with its share price now at less than half of the IPO

FMR Co., Inc., a registered investment advisory firm located in Boston, followed the wider market sentiment toward spread-betting players and offloaded part of its stake in CMC Markets, according to a recent disclosure with the London Stock Exchange.

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The US investment firm helped to float the spread betting business at 240p a share in February and held on to a more than 5 percent stake in CMC Markets for nearly six months before it has cut its holding to below this threshold on December 15.

The investment giant, who bought CMC shares at twice today’s price, can only hope they don’t lose much after the UK financial watchdog announced plans to protect individual investors from making excessively risky bets on financial markets they do not properly understand.

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Shares of the FTSE 250 firm had this month its worst days on the markets, plummeting almost 50 percent after the FCA fired a warning against the sector that it had enjoyed soaring profits in recent years, probably at the expense of its clients.

Lazy clients hit CMC profits

The offering came at a difficult time for spread-betting bookmakers. Interestingly, it also comes just a few days after Odey Asset Management increased its stake in Plus500, another financial betting giant, for the third time after the firm lost nearly one-third of its value in response to the FCA announcing plans to tighten the rules on selling CFDs products.

To unravel the mystery, we may need to take a closer look at the business structure of both companies but at glance Plus500 could be stronger across wider markets/asset classes than CMC, having a better exposure in terms of product diversification and the UK market overall, or at least puts in a better showing.

In addition, CMC showed that some of the problems are specific to it. Earlier in September, the spread-betting and derivatives platform said clients placed fewer trades, dragging revenues down even as operating costs rose. The firm added that there had been no further easing of client trading levels in recent weeks, and if activity remains sluggish, profits for the year are likely to fall. This is another reason to guess that loss of confidence is the result of a weak performance or business model structure and not only the FCA’s crackdown on spread betters.

FMR Co., Inc. is a privately owned investment manager. The firm primarily provides its services to investment companies and manages separate client-focused portfolios. It also manages equity, fixed income, multi-asset, and balanced mutual funds, as well as investing in public equity and fixed income markets across the globe.

CMC Markets PLC (MCX:LN LONDON): Bloomberg
CMC Markets PLC (MCX:LN LONDON): Bloomberg
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