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The S&P 500 offers investors 500 opportunities to build a beautifully balanced portfolio. From tech titans to old-school industries, the index has everything under the sun to achieve true diversification.
However, billionaire hedge fund manager and philanthropist Sir Chris Hohn doesn’t bother with any of that. He concentrates capital into a small handful of companies (just nine at the end of the third quarter).
Yet this strategy has worked wonders. Since 2003, his fund — The Children’s Investment Fund (TCI) — has delivered annualised returns in the ballpark of 18%-20% (net of fees).
So how has he achieved these world-class returns?
A strategy honed over decades
On one level, Hohn’s strategy is very simple. It can be boiled down to this: he hates competition (his words).
As such, the hedge fund manager prefers to invest in monopolies or duopolies. That is, he chooses companies operating in industries with such high barriers to entry that he can be almost certain they’ll still be around in 20-30 years.
TCI’s portfolio reflects this, as we can see below. These nine are extreme high-moat companies (many act like tool booths).
| What the firm does | Effective monopoly / duopoly? | |
|---|---|---|
| Alphabet | Search, Android, YouTube | Google Search has 90%+ share |
| Canadian National Railway | Freight railway spanning Canada–US routes | Part of the Canadian rail duopoly |
| Canadian Pacific Kansas City | Railroad connecting Canada, the US, and Mexico | Other half of the Canadian rail duopoly |
| Ferrovial | Global infrastructure (toll roads, airport stakes) | Assets can be local monopolies |
| General Electric | GE Aerospace; designs and services jet engines | Widebody engine duopoly |
| Microsoft | Cloud, enterprise software, AI | Cloud is an oligopoly (Azure–AWS–Google) |
| Moody’s | Credit ratings | Duopoly |
| S&P Global | Credit ratings, indices | Ratings duopoly |
| Visa (NYSE: V) | Global payments network | Duopoly with Mastercard |
Another thing worth mentioning is that, unlike most other hedge fund managers, Hohn’s truly long-term in his outlook. This chimes with the Foolish investing philosophy espoused by The Motley Fool.
The average holding period of the TCI portfolio is eight years (and counting).
High conviction
As we can see below, Hohn has an incredible 61% of the portfolio in just three S&P 500 stocks (General Electric, Visa, and Microsoft).
| Weighting | |
|---|---|
| General Electric | 27.12% |
| Visa | 18.18% |
| Microsoft | 16.31% |
| Moody’s | 12.03% |
| S&P Global | 10.33% |
| Canadian Pacific Kansas City | 7.05% |
| Alphabet | 3.51% |
| Canadian National Railway | 3.36% |
| Ferrovial | 2.11% |
Yet TCI looks to be on course for another positive year of performance. Because GE is up 72.2% so far in 2025, while Ferrovial and Alphabet have soared 41.3% and 65.1% respectively. Microsoft is also contributing, with a 16.5% increase.
However, Visa’s only up 3.4%, thereby lagging the S&P 500 by some distance. This is perhaps a little surprising. After all, its business model — where it takes a cut of the hundreds of billions of annual transactions processed through its network — is incredibly powerful.
One thing that might be hanging over the stock is regulatory concerns. Earlier this year, European regulators intensified an antitrust investigation into Visa’s fee structure and how it may be burdening European retailers. This may one day result in fee reductions that negatively impact margins.
That said, Visa’s probably one company that could take a margin hit and still be an attractive stock to own. In fiscal 2025, its capital-light model generated a mind-blowing 50% net margin!
Worldwide, there are 4.8bn Visa cards in use, with over 150m+ merchant locations accepting them. This creates a massive network effect. And as card transactions continue to replace cash around the world, Visa’s poised for further steady long-term growth.
The stock’s down 12.5% since June, putting it on a not-too-demanding forward price-to-earnings ratio of 27.
At this price, I think investors should consider buying the dip in Visa. Just maybe not the hefty 18.2% portfolio weighting Chris Hohn runs with!
