PI Global Investments
Hedge Funds

TCI Boosts Its Favorite Holdin

Regular readers will know that my favorite hedge fund is TCI Fund Management. Managed by Chris Hohn, the fund has achieved one of the best track records of any investment vehicle in history.

The group manages around $55 billion overall, with real estate making up around 15% of the portfolio and the rest comprising a public equity portfolio.

Since its inception, the hedge fund has generated around $37 billion in profits for its investors, of which around $10 billion was produced in 2021 (profits have accelerated in recent years thanks to the benefits of compound interest as well as buoyant equity markets).

TCI’s approach to investing is relatively simple. The hedge fund, which sometimes uses an activist approach, is looking for high-quality companies trading at discounts to their intrinsic value. It acquires a concentrated portfolio of these investments and then holds them for the long run until value is realized or until value is created and compounded.

The figures above show this approach has been tremendously successful over the past decade. The fund’s approach has earned its investors huge profits. In fact, it is one of the most profitable hedge funds in the world.

There is a lot of overlap between how Hohn runs his portfolio and how
Warren Buffett
(Trades, Portfolio) invests. Both managers are looking for high-quality companies trading at attractive valuations. They also have a long-term mentality when it comes to owning investments. They are not looking to trade in and out of positions unless something has changed or value has been unlocked. They are both quite happy to hold on to a security if it continues to compound shareholder wealth.

These are the key reasons why I think it is worth keeping an eye on TCI‘s portfolio.

Recent portfolio changes

According to the hedge fund’s latest 13F report, it made some significant changes to its portfolio in the second quarter of 2022.

I should point out this report only highlights U.S. equity securities. It does not detail any real estate positions, cash holdings or international equity investments. That’s why the filing only details $32 billion worth of equity positions. The rest of the assets under management are not required to be reported to the Securities and Exchange Commission.

As mentioned above, TCI runs a concentrated portfolio. The most prominent position in the portfolio at the end of June was Google’s parent company Alphabet Inc. (GOOG, Financial). The Class C stock had a 17% weighting in the portfolio at the end of the quarter, and the hedge fund manager increased his position in the company by around 5% in the period reviewed.

The stock has been a feature of the portfolio since the third quarter of 2017, when TCI first started buying at prices of around $50 per share. The fund manager also bulked up the firm’s holdings of the Class A (GOOGL, Financial) stock by 34%. Combined, these two positions now account for 22% of the equity portfolio overall, making Alphabet by far the most prominent position.

The second-largest holding, which the fund was also increasing in the second quarter, is Microsoft (MSFT, Financial). Now accounting for 16% of assets under management, the fund increased its holdings of the company by around 14% in the three months to the end of June.

Of the top five holdings, these are the only ones TCI added to during the period. There are 13 equity positions in the portfolio overall, or 12 if you exclude the double position in different classes of Alphabet stock.

TCI also added to its holdings of Moody’s Corp. (MCO, Financial) and S&P Global Inc. (SPGI, Financial).

The new positions the fund manager added during the period were Applied Materials Inc. (AMAT, Financial), KLA Corp. (KLCA) and Lam Research Corp. (LRCX, Financial). All of these businesses are active in the design, development and production of semiconductors and related instruments. Although they are only relatively modest holdings (0.82% of the equity portfolio overall), Hohn and team appear to think this sector is set for growth and looks cheap considering its potential.

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