Market share

Bond interest rates
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Your Best Way to Buy Bonds: Small-Cap MarketAxess

There’s plenty of talk about the risk of a bond bubble right now and the “great rotation” into equities.

On one hand, hedge fund guru Jeff Gundlach is chasing Treasuries in a big way, and bond king Bill Gross remains convinced that while bonds are weaker, they are far from dead.

On the other hand, the idea that bond selling (and subsequently, long-term rates) has picked up thanks to the stock market’s rally — and that the bond bubble will hurt just as bad as the housing bubble or as bad as the dot-com bubble — continues be a cause for concern.

But whatever side of the bond trade you’re on, keep in mind that the market for bonds has one sure-fire investment in any environment: MarketAxess (NASDAQ:MKTX), a small-cap stock that serves as an electronic trading platform for bond transactions of all stripes.

Think TD Ameritrade (NYSE:AMTD) or E Trade Financial (NASDAQ:ETFC), but for bonds. The profits come from a small commission on every trade, only for bond transactions instead of equities.

Those small commissions can add up in a hurry, though, considering that as of February, the company boasted transaction volume of $52.1 billion — covering eurobonds, emerging-market bonds, corporates and a host of other investments.

MarketAxess is one of the only electronic trading platforms for bond investors. Many investors might not even know it exists, doing their bond investing the old-fashioned way with a phone call to a guy in a suit … but that should drive the long-term potential of this stock home even more considering the growth potential here.

Right now, the company has a 13% market share — double what it was a few years ago — and saw net income soar from $47.7 million in 2011 to $60 million in 2012 for a 25% increase. Furthermore, FY2013 revenue is set to grow at a more than 20% clip as it continues to broaden its reach.

MarketAxess is a great example of the opportunities created by technology in capital markets, taking the inefficiency out of the bond market. So whether or not you believe that bonds themselves or a good or bad investment, consider a position in MarketAxess.

Because as an asset class, bonds will always be around — and whether investors are buying or selling, MarketAxess will be there to take a cut.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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