Here is How Billionaire Chris Hohn’s Hedge Fund Beat the Market with 33% Gain
In this article, we take a look at here is how billionaire Chris Hohn's hedge fund beat the market with 33% gain and his top 9 stock picks. You can skip our detailed discussion of Hohn's investment philosophy, his fund's performance and go directly to Here is How Billionaire Chris Hohn's Hedge Fund Beat the Market with 33% Gain and His Top 5 Stock Picks.
Founded in 2003 by billionaire investor Chris Hohn, the TCI Fund Management was up 32.7% in 2023, recouping a significant chunk of the losses accrued in 2022. The hedge fund was down by about 18% in 2022 as the S&P 500 fell 19% at the height of a ferocious market sell-off triggered by a significant spike in inflation and a push by the US Federal Reserve to hike interest rates.
TCI Fund Management had one of the best years in 2019 as it returned $8.4 billion worth of net gains, providing a 41% return against an average hedge fund return of 10.35%. It returned 14% at the height of the COVID 19 pandemic in 2020. Likewise, it outperformed the overall sector as equity hedge funds gained 6.65% on average in 2023 against its 32.7%, benefiting from solid gains in the technology sector.
Hohn founded the hedge fund with his ex-wife, Jamie Cooper Hohn, with the sole aim of transforming the lives of children and adolescents. Consequently, the hedge fund manager donates 50 basis points of the management fees to the fund to help fund various charitable initiatives. In addition, the fund also finances various causes, including climate, sexual & reproductive health, aimed at improving the health and lives of girls all over the world.
TCI Fund Management has been growing in strength since it bounced back from a 43% drawdown amid the global financial crisis in 2008. It has generated, on average, 18% in annualized gain since inception, more than double the return of the S&P 500 index over the same period. The gains have come on Hohn running mostly long only and a very concentrated global portfolio of stocks.
TCI Fund Management 's performance in 2023 affirmed Hohn's stock-picking skills that have always allowed him to outperform the overall market. The hedge fund has posted profits for 13 straight years through 2021. It only lost money when it went down by 18% in 2022 as its investments in Alphabet and Microsoft turned sour amid a broader sell-off in the tech sectors.
In 2023, it was a different ball game as TCI Fund Management benefited from its exposure to high-growth stocks that exploded at the height of the bull run. Its biggest holdings were all up by more than 25% for the year, helping propel TCI Fund Management to stellar gains in 2023.
The hedge fund also benefited from the diversification strategy that Hohn has always relied on to generate returns in the market. Over the years, Hohn has always emphasized investing in various industries, including manufacturers, consumer products companies, and even banks. While the services sector accounts for the biggest share of TCI Fund Management holdings, the fund is also heavily invested in technology and health care.
Chris Hohn
Hohn is also known for his relentless efforts in pushing companies to make strategic changes to improve performance and returns. He occasionally spearheads activist campaigns whenever he believes a stock is trading below its intrinsic value. One of his most recent activist campaigns was at Alphabet, where he penned a letter to CEO Sundar Pichai asking the executive to initiate structural changes in the push to cut back on expenses and reduce headcount.
It is still unclear whether Hohn’s activist campaign letter prompted Alphabet to embark on a restructuring drive. Concerned by soaring pressure amid artificial intelligence threats mostly spearheaded by Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG) took drastic changes that involved laying thousands of workers.
The tech giant also bolstered its investments in artificial intelligence, resulting in the launch of AI-powered chatbot Bard. Amid the efforts, Hohn also pushed Alphabet to consider decreasing salaries as one of the ways of clamping down on expenses as competition for talent in the industry has subsidized significantly.
Airbus is another company that has felt the full brunt of Hohn activists' campaigns. In February of last year, the billionaire investor wrote a letter urging the company to terminate ongoing negotiations over the purchase of a minority stake in Evidian.
With about $4.3 billion worth of stakes in Airbus, the billionaire reiterated the investment would only be value-destructive. While Airbus shrugged off the activist campaign and went ahead with the deal, it ultimately fell apart amid regulatory hurdles.
Our Methodology
Billionaire investor Hohn is one of the most respected hedge fund managers, having generated solid returns for 13 consecutive years. Likewise, the hedge fund manager is always followed for insights on ideal investment opportunities in the equity markets. After analysing TCI Fund Management 13F filings, we settled on investment plays that allowed billionaire Chris Hohn's hedge fund to beat the market by 33%. The stocks are ranked based on the value of TCI Fund Management equity stakes. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Here is How Billionaire Chris Hohn's Hedge Fund Beat the Market with 33% Gain
9. Ferguson plc (NYSE:FERG)
TCI Fund Management's Equity Stake: $80.33 Million
Number of Hedge Fund Holders: 46
Ferguson plc (NYSE:FERG) is a company that provides plumbing and heating products to various sectors. It caters to the needs of residential, commercial, civil/infrastructure, and industrial customers with its plumbing and heating services.
Ferguson plc (NYSE:FERG) had an impressive 2023, rallying 53%, outperforming the S&P 500 and helping billionaire Chris Hohn's hedge fund beat the market with a 33% gain. TCI Fund Management held stakes worth $80.33 million in Ferguson plc (NYSE:FERG) as of Q3 2023.
A total of 46 hedge funds tracked by Insider Monkey had stakes in Ferguson PLC (NYSE:FERG), down from 51 in the previous quarter. Ferguson plc (NYSE:FERG)’s leading hedge fund stakeholder is Nelson Peltz’s Trian Partners since it owns $890.64 million worth of shares.
Here is what ClearBridge Investments, an investment management firm, said about Ferguson plc (NYSE:FERG) in its letter to investors for the third quarter of 2023:
“We initiated a new position in Ferguson plc (NYSE:FERG), in the industrials sector, a leading distributor of plumbing, pipes-values-fittings, appliances, janitorial supplies and other products to plumbing and mechanical contractors. The company is an established market leader, commanding nine Percent of the market in a highly fragmented industry. Ferguson has the opportunity to grow faster than the industry average through scale and technology advantages as well as accretive acquisitions. With the company having divested its European operations to focus on the North American market, we believe it is poised for significant valuation improvement.”
8. Thermo Fisher Scientific Inc. (NYSE:TMO)
TCI Fund Management's Equity Stake: $1.62 Billion
Number of Hedge Fund Holders: 109
Thermo Fisher Scientific Inc. (NYSE:TMO) is Hohn’s largest holding in the healthcare sector. The company provides life sciences solutions, analytical instruments, specialty diagnostics, laboratory products, and biopharma services.
TCI Fund Management has been buying and selling shares in Thermo Fisher Scientific Inc. (NYSE:TMO) since Q4 2022. The hedge fund held stakes worth $1.62 billion in Thermo Fisher Scientific Inc. (NYSE:TMO) as of the end of Q3 2023. While trading at a price-to-earnings multiple of 24.88 and offering a 0.26% yield.
109 out of the 910 hedge funds surveyed by Insider Monkey during Q3 2023 were Thermo Fisher Scientific Inc. (NYSE:TMO) shareholders, up from 103 in the preceding quarter. Chris Hohn’s TCI Fund Management is the most significant investor in Thermo Fisher Scientific Inc. (NYSE:TMO) among these.
7. Alphabet Inc Class C (NASDAQ:GOOG)
TCI Fund Management's Equity Stake: $2.23 Billion
Number of Hedge Fund Holders: 163
Alphabet Inc Class C (NASDAQ:GOOG) operates as a communication services company, but it is billed as one of the biggest technology companies. The conglomerate offers an array of internet services, including search, cloud computing, and advertising services. Alphabet Inc Class C (NASDAQ:GOOG) is also involved in the sale of apps.
Alphabet Inc Class C (NASDAQ:GOOG) emerged as one of the biggest artificial intelligence plays in 2023 that also helped billionaire Chris Hohn's hedge fund beat the market with a 33% gain. Alphabet Inc Class C (NASDAQ:GOOG) was up by about 54% in 2023 amid the AI frenzy, as it also benefited from a booming advertising business.
TCI Fund Management held stakes worth $2.23 billion in the Alphabet Inc Class C (NASDAQ:GOOG) as of Q3 2023, accounting for 8.09% of the portfolio.
In the third quarter of 2023, 163 hedge funds owned Alphabet Inc. Class C (NASDAQ:GOOG). Among these hedge funds being tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management is a leading shareholder in Alphabet Inc Class C (NASDAQ:GOOG) with 43.75 million shares worth more than $5.72 billion.
In its Q3 2023 investor letter, Weitz Investment Management highlighted a few stocks, and Alphabet Inc. (NASDAQ:GOOG) was one of them. Here is what the fund said:
“As for other quarterly contributors, Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc., (META) added to their exceptional year-to-date returns. Meta Platforms and Alphabet were the true year-to-date standouts. After steep declines in 2022, both stocks rebounded sharply due to a combination of solid fundamentals, disciplined operational execution, and improved sentiment. Despite outsized gains and attention, we think both Alphabet and Meta remain undervalued.”
6. Moody’s Corporation (NYSE:MCO)
TCI Fund Management's Equity Stake: $3.28 Billion
Number of Hedge Fund Investors: 58
Headquartered in New York, Moody’s Corporation (NYSE:MCO) is a financial services company that operates as a risk assessment firm. Moody’s Corporation (NYSE:MCO) publishes credit ratings and provides assessment services on various debt obligation programs and facilities.
Demand for Moody’s Corporation (NYSE:MCO)’s solutions was the catalyst behind the stock gaining 33% in 2023, thus helping billionaire Chris Hohn's hedge fund beat the market with a 33% gain. Moody’s Corporation (NYSE:MCO) also offers a 0.82% dividend yield. Hohn’s hedge fund held stakes worth $3.28 billion in the company as of the end of Q3 2023, accounting for 11.89% of the portfolio.
According to the Insider Monkey database, 58 out of 910 hedge funds invested in Moody’s Corporation (NYSE:MCO) in the third quarter of 2023. The biggest investor among them was Warren Buffett’s Berkshire Hathaway, which owned a stake worth $7.7 billion.
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Disclosure: None. Here is How Billionaire Chris Hohn's Hedge Fund Beat the Market with 33% Gain is originally published on Insider Monkey.
