TCI Fund Management is one of the world's most successful hedge funds. However, despite its success, the fund is relatively secretive, which means it is often overlooked in the investment world.
Managed by Sir Christopher Hohn, TCI Fund Management, aka The Children's Investment Fund, has posted enormous returns for its investors since inception. Unlike many of its peers, it has also produced profits every year since the financial crisis, although it returned less than 1% in 2018.
Still, it made up for this performance in 2019. Last year the fund returned a staggering 41%. Before this return, since its inception in 2014, the fund compounded investors' capital at a rate of around 18% a year net of fees.
The $30 billion hedge fund tends to run a relatively concentrated portfolio. It also has a reputation for activist investing. Considering its track record of outperformance, I think it is worth keeping an eye on TCI's portfolio.
TCI's recent portfolio moves
According to the hedge fund's latest 13F filing, there was one stock it bought more of than any other in the second quarter of 2020.
TCI increased its position in payment processor Visa (V, Financial) by 52% during the three months ended June 30. The position was worth a total of $2.6 billion at the end of the second quarter, making up just under 10% of the overall portfolio.
Hohn and his team have been fans of the company since the second quarter of 2019. From an initial position of under one million shares, the holding has grown by more than ten times over the past 12 months.
TCI has not commented on why it has made Visa why such a significant position. However, the company does have a dominant position in the global payment processing market, and it is unlikely to be disrupted anytime soon. Along with MasterCard (MA, Financial), the company is virtually the only other major card processor in the Western world, which allows it to make larger than average profit margins. The company's average operating margin for the past six years was 62%. It has been returning cash to investors with share buybacks and a small dividend.
As well as significantly increasing the position in Visa, it looks as if TCI also took advantage of low valuations in the property sector during the second quarter of 2020. According to its second-quarter 13F filing, TCI acquired shares in Vornado Realty Trust (VNO, Financial) and Boston Properties (BXP, Financial). Both of these positions now have a 0.6% portfolio weight.
Boston's shares slumped in value at the beginning of the coronavirus pandemic and have since struggled to recover. It owns 167 office properties and has been hurt by the work-from-home trend.
Meanwhile, Vornado operates office and retail properties with a concentration in the New York City metropolitan area. Once again, shares in this return investment trust have been hurt by the coronavirus crisis as vacancy rates in the commercial and office real estate markets have increased along with rent voids.
Despite the prevailing headwinds facing these two companies, it seems that the team at TCI is optimistic on their long-term outlook. The fund may also adopt an activist approach if these companies struggle to increase their share prices in the near-term. That's something I would not rule out, especially considering TCI's activist history.
Overall, the most significant position in the fund at the end of the second quarter was Charter Communications (CHRT, Financial) with a 21% portfolio weight. This was followed by Google's parent company Alphabet (GOOG, Financial) at 16.7% and Microsoft (MSFT, Financial) at 12%. The fourth-largest holding in TCI's equity portfolio at the end of June 2020 was Canadian Pacific Railway (CP, Financial) with a 11.4% portfolio weight.
Disclosure: The author owns no share mentioned.
Read more here:
- Some Thoughts on Warren Buffett's Recent Stock Moves
- Reviewing David Einhorn's Deep Value Stocks
- Looking at the Most Popular Hedge Fund Stocks of the 2nd Quarter
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