In a recent series, I profiled some of the best-performing hedge funds and actively managed investment funds in the world. These included:
- Chris Hohn's TCI Fund Management: The $30 billion firm has compounded investors' capital at about 18% per year, net of fees, since inception at the start of 2004.
- Lindsell Train Global Equity: Managed by Nick Train, the U.K.-based fund returned 362% from its launch in March 2011 to the end of 2020. That compares to 211% for the MSCI World index.
- Terry Smith's Fundsmith Equity: The active fund has returned 440% in the past decade, an annualized return of 18.2%.
- Chase Coleman (Trades, Portfolio)'s Tiger Global Management: Its flagship long-short equity fund has compounded investors' capital at 21% per annum after fees for the past 20 years.
What's fascinating about every one of these firms is that each has a different portfolio. There is some overlap, but in the top holdings, the positions are almost (apart from one instance) completely different.
For example, the top two holdings in TCI are (based on 13F filings) Charter Communications Inc. CHTR and Alphabet Inc. GOOG. At Tiger Global, they are JD.com Inc. JD and Microsoft Corp. MSFT.
At Fundsmith, the top two holdings are PayPal Holdings Inc. PYPL and Microsoft, and at Lindsell Train, the largest holding is the London Stock Exchange Group PLC LNSTY, closely followed by drinks giant Diageo PLC DEO.
Four top-performing funds, seven different top two holdings. These portfolios show that there's always going to be different ways to make money.
That being said, there is one common factor that links all of these portfolios, and it seems to be one of the leading reasons why these funds have achieved so much over the past 10 years.
Long-term investing
There is plenty of evidence that shows long-term investors achieve the best results. These firms only confirm the fact.
Tiger Global is one of the most successful hedge funds in the world. It arrived at this position by catching the Chinese tech boom relatively early, around the time of the dot-com crash. This was incredibly fortunate, especially considering the environment of the time. The decision to invest in Chinese internet stocks in the early 1990s laid the foundations for the hedge fund's track record that we see today. The hedge fund might have been lucky to invest in the Chinese tech sector when it did, but holding on for the past 20 years required discipline and skill.
The same is true of TCI. Another one of the world's best-performing hedge funds, this firm has reaped huge profits buying and holding Charter Communications and Alphabet, both of which were acquired in 2016 to 2017.
Meanwhile, Microsoft has been a top-five holding of Fundsmith for over a decade (the fund only started trading in 2010). The London Stock Exchange has been a core holding for Lindsell Train since 2015.
It might seem a bit outlandish saying that holding a stock for five years qualifies as a long-term investment. I would agree. However, we need to consider both the level of technological change over the past five years, the incredible performance of some of these stocks and the average holding period of investment funds in general. All of these factors would have worked against long-term investing, potentially pushing managers to trade more.
The bottom line
The takeaway from all of this is the fact that buying and holding high-quality businesses does yield results.
Of course, the hard part is finding these businesses in the first place. Unfortunately, no formula will guarantee success for finding these types of companies. Still, when one does eventually find them, it makes sense to hold on for the long-term.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Reviewing Portfolio Performance Over the Past Decade
- What We Can Learn From Archegos Capital's Downfall
- What Does Bill Gates' Trust See in Waste Management?
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