‘Europe’s Most Feared Investor’ Chris Hohn’s Top 10 Stock Picks

In this article, we take a look at billionaire Chris Hohn’s top 10 stock picks. You can skip our detailed discussion of Hohn’s investment philosophy, his fund’s performance and go directly to Billionaire Chris Hohn’s Top 5 Stock Picks.

Sir Christopher Anthony Hohn is an English hedge fund manager, philanthropist and billionaire who founded The Children’s Investment Fund Management (TCI), a London-based hedge fund with over $31 billion in managed securities. Hohn ranks 330th in the Forbes’ list of 2020 billionaires and 9th in the Highest-Earning Hedge Fund Managers 2018 Forbes’ list. Hohn took accounting and business economics in college and graduated with first-class honors from the University of Southampton in 1988. Chris Hohn continued his studies and eventually achieved his Master of Business Administration degree at Harvard Business School. 

Hohn’s hedge fund is defying the industry trends, returning 14% in 2020 despite the coronavirus crisis, thanks to its profitable bets on Microsoft, Charter and Canadian Pacific.

The Most Feared Investor in Europe

Hohn has a reputation for being a relentless activist investor. The New York Times called him one of the “most feared” investors in Europe. In his book titled “Invasion of the Locusts,” Werner G. Seifert, former CEO of trading company Deutsche Börse, described Hohn as someone driven by a “desire to win.” Börse says Hohn, unlike his peers who are fond of expensive suits and cars, has a simple lifestyle.

Hohn recently started picking a fight with his portfolio companies by forcing them to disclose their carbon footprint and slash their carbon emissions.  His fund also donated $260,000 to Extinction Rebellion, an organization that strives to compel governments to act to stop global warming.

After finishing his master’s degree, Hohn worked for the private equity firm Apax Partners before working for Perry Capital in 1996. After just two years at Perry Capital, he was made the head of Perry’s London operations in 1998, thanks to his excellent stock-picking strategies. Hohn led Perry Capital’s European fund, posting close to 20% returns consistently.

In 2003, Christopher Hohn founded his own hedge fund named ‘The Children’s Investment Fund.” He believes in investing in stocks having deep fundamental value and strong free cash flows. The next year after its inception, TCI’s Master Fund was up 43%. To motivate himself to work better, Hohn established a charitable link and regularly donated to ‘The Children’s Investment Fund Foundation” run by his former wife.

Chris Hohn's top 10 stock picks

Chris Hohn

From March 2019 to March 2020, Christopher Hohn reportedly made $479 million, the highest yearly amount paid to an individual in the United Kingdom. His TCI Fund Management reached a milestone in 2019 as they made more money in financial markets than all the other hedge funds in the world. The fund delivered a whopping $8.4 billion worth of net gains in 2019, after providing a 41% return, versus the average hedge fund returns of 10.35%, outperforming the most successful hedge funds, including Ray Dalio’s Bridgewater Associates, Ken Griffin’s Citadel and Steve Cohen’s Point72 Asset Management. As of today, TCI has over $30 billion worth of assets under management, while Hohn’s worth stands at $5.9 billion. Hohn’s hedge fund achieved a total of $22.8 billion net gains since its inception.

In a 2014 interview with Institutional Investor, Chris Hohn said that he does not see any shortage of opportunities in the Alpha generation and that there are plenty ways to invest.

“There’s really no shortage of opportunities in the Alpha generation, in our view. Since 2010, the fund has returned 18% per annum, up 22% net fees in 2014 and 18% of years over the ten years life of the fund. So we’re finding plenty to invest in.”

Hohn’s Way of Generating Alpha

“We generate Alpha through a number of ways. Firstly, understanding the sustainability of business models. Having business models and taking a long-term horizon over which the persistence of high barriers to entry plays out very much in the philosophy of Warren Buffet. Secondly, we have a deep sector expertise in some sectors, including infrastructure and consumer goods, which help us to understand when opportunities are good. Thirdly, we run concentrated positions, can be in excess of 10% of NAV and so by concentrating in a handful of very good ideas where we find the Alpha, it can mean something and can outperform. Finally, I’ll mention the issue of being prepared to be activists, which is an efficient space where a few people are willing to do that… and so that combination of taking a long-term view which gives is a time horizon arbitrage, sector expertise, understanding business models that corporate governance expertise, and the combination of those factors has allowed us to generate consistently high Alpha.”

Christopher Hohn on Why He Thinks Activist Space is Inefficient

“Firstly, where there’s a corporate governance concern, investors just tend to stay away completely. They don’t try to say ‘what discounts should I apply?’ and they just completely stay away. An example is News Corporation (NASDAQ: NWSA), where we made a very large investment a couple of years ago during the hacking scandal where the stock traded at extremely cheap valuations 4x operating profits was worth triple and people’s investor said, ‘I don’t invest in a company that has hacking phones who knows what the liability might be’ and we said, ‘well the liability, we can’t tell if it’s $20 million or $10 million, but $50 billion was discounted,’ and so it didn’t matter. So for us, there was a price, and secondly, we understood that there was an inflection point in corporate governance as a result of the scandal where they decided to buy back a lot of shares, break the company up, and have a new CEO… Also, that can be exploited with investors just say there’s no price. I think of it as the damage food section of a department store where you can get 80% to 90% off even though because most people won’t buy anything that’s damaged. Also, hardly any investors will be activists because it’s a reputation for them, and they think that no company would ever talk to them again. So there’s a dearth of investors willing to be activist competitors.”

Hohn stands out because overall, the hedge fund industry is struggling. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s now examine the top 10 stock picks of Chris Hohn.

10. S&P Global Inc. (NYSE: SPGI)

New York-based S&P Global, formerly known as McGraw Hill Financial Incorporated, provides credit ratings, market and commodities intelligence, and data analytic services to the world’s various financial markets. For the past five days, the company delivered a decent 9.48% return. As of March 3, SPGI closed at $326.53 per share.

With an $853.3 million stake in S&P Global, Cantillon Capital Management owns 2.6 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 75 hedge funds held stakes in SPGI at the end of the fourth quarter, versus 71 funds at the end of the third quarter.

In their Q4 2020 Investor Letter, Bretton Fund highlighted a few stocks, and S&P Global Inc. (NYSE: SPGI) is one of them.

Here is what Bretton Fund stated:

“The main laggard was S&P Global, which took off 0.3% from performance. The company announced a large acquisition of another market-data provider, which may have dampened its share price. While we’re generally skeptical of mega mergers, we’re optimistic this will turn out well for the company. We bought more shares during the quarter.”

9.  Boston Properties, Inc. (NYSE: BXP)

Massachusetts-based Boston Properties owns and develops office properties in America. Since the beginning of this year, Boston Properties’ shares have soared over 6%. As of the end of the fourth quarter, 30 hedge funds in Insider Monkey’s database of 887 funds held stakes in BXP, compared to 26 funds in the third quarter. TCI Fund Management is the company’s most significant stakeholder, with 8.4 million shares worth $790.4 million.

8. Union Pacific Corporation (NYSE: UNP)

TCI Fund Management’s strategy of keeping their Union Pacific Corporation position unchanged during the December quarter benefited the hedge fund. Shares of the freight-hauling railroad company rallied 28% in the last 12 months, resulting in a $134.7 billion market capitalization.

There were 68 hedge funds in our database that held stakes in UNP at the end of the fourth quarter, compared to 74 funds in the third quarter.

7. Moody’s Corporation (NYSE: MCO)

In the third quarter, the ratings agency posted adjusted EPS of $1.91, missing the consensus by $0.03. Revenue in the quarter jumped 49% to reach $1.2 billion, beating the Street’s forecast by $70 million. Adjusted operating income of $559 million was better than the Street’s estimate of $495.2 million.  Shares of MCO are up 16% in the past 12 months but down 4.21% so far in 2021. Moody’s Corporation occupies 6.24% of TCI’s overall portfolio.

According to our database, the number of MCO’s long hedge funds positions decreased at the end of the fourth quarter of 2020. Fifty-nine hedge funds hold a position in Moody’s Corporation by the end of December, compared to the 60 funds in the third quarter. The company’s biggest stakeholder is Warren Buffet’s Berkshire Hathaway, with 24.7 million shares worth $7.2 billion.

6. Canadian National Railway Company (NYSE: CNI)

TCI Fund Management reduced its position in Canadian National Railway Company during the fourth quarter, according to the latest 13F filings. Despite that, CNI still ranks 6th on the list of Chris Hohn’s top 10 stock picks. Shares of CNI rallied 27.69% in the past 12 months.

As of the end of the fourth quarter, 31 hedge funds in Insider Monkey’s database of 887 funds held stakes in Canadian National Railway Company, compared to 26 funds in the third quarter. Chris Hohn’s TCI Fund Management is the company’s biggest stakeholder, with 20.8 million shares worth $2.3 billion.

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Disclosure: None. Billionaire Chris Hohn’s Top 10 Stock Picks is originally published on Insider Monkey.