BALTIMORE (Stockpickr) -- In the hedge fund industry, where being different is often rewarded by significant paydays, few manage to be quite as different as The Children's Investment Fund. Better known to many as TCI, the $4 billion activist hedge fund operates in a different circle than most of its peers.
That's because, as the name implies, the fund has a major tie-in to charity work, donating approximately 0.5% of AUM annually to the similarly named Children's Investment Fund Foundation. The foundation, which was founded by TCI hedge fund manager Chris Hohn and his wife Jamie Cooper-Hohn, is dedicated to improving the lives of children in developing countries by funding humanitarian aid, microfinance and work to fight HIV/AIDS.
But just because the fund has ties to a charitable foundation doesn't mean that profits aren't paramount for shareholders. Despite its relatively small size, the fund is famous for its activist bent, taking on management at behemoth companies -- such as Germany's Deutsche Borse in 2005 and Dutch bank ABN Amro in 2007 -- and winning.
In the TCI's latest quarterly filings with the SEC, the fund reported a single new position:
. Although the stake is new, it's far from small: In its first quarter of ownership, TCI owns $559 million worth of Disney stock.
The interest in Disney shouldn't come as a total surprise. With high-growth names such as ESPN and an incredibly valuable library under its belt, the stock is seeing significant margin improvement in 2010. At the same time, shares are edging out the broad market on the year, giving rise to increased buyer interest on a stock that's already almost 80% owned by insiders and institutions.
Disney should be able to see continued growth in the coming years as its media networks expand their footprints and the increased adoption of new entertainment technologies contributes to better content distribution. With only 24% of sales coming from outside the U.S. right now, there's also plenty of room for Disney to expand in emerging markets, where an emerging brand-sensitive middle class is primed to consume.
The case for geographic expansion is a little more limited for
, North America's largest railroad. But that hasn't stopped the company from impressive gains this year, rallying more than 24% since the first trading days of January. Those gains have been largely predicated on margin expansion and the increasing cost of freight transportation -- two factors that should continue to be growth catalysts this year.
While trucking continues to be a dominant force in moving products across the U.S., the industry is incredibly price sensitive because of the monumental fuel costs involved. Rail, on the other hand, is up to four times more fuel efficient per shipping ton over long distances, a fact that makes rail carriers a more attractive option as volatility in fuel prices continues to bear down on consumers. UNP has capitalized on those tailwinds by improving efficiency and reinvesting substantial capital in infrastructure, two actions that ultimately provide value to shareholders.
Union Pacific's business has proved attractive enough to TCI to prompt the fund to take a major stake. With a $793 million stake in shares of UNP, the company makes up one-fifth of TCI's portfolio. Hohn and company added nearly 400,000 shares to their coffers in the latest quarter.
Another of the fund's biggest positions is in shares of
, the world's largest payment network. Despite significant bias against consumption-driven financial stocks here in the U.S., Visa has managed to pull ahead of the pack thanks to a lack of credit risk and vast exposure to debit transactions. As people all over the world transition toward cards and away from cash, Visa should be a winner.
More than 60% of payment cards in the world carry the Visa logo, a fact that's not lost on competitors such as
. But the competitive tenor in the payment processing business could be heating up. As American Express starts offering its network to third-party banks, Visa is seeing switching among North American cardholders: Visa's biggest base. Still, because American Express will find difficulty competing with the low merchant fees charged by Visa, it's unlikely we'll see the former ditch its core business in favor of Visa's model.
Although Visa is one of TCI's biggest stakes at $600 million, the fund sold nearly half of its shares last quarter, making it the biggest seller of Visa stock in the second quarter of 2010. Investors will likely be interested to see how TCI changes its Visa holdings by next quarter.
Another big sell last quarter was
; TCI liquidated just under one-third of its stake in the beverage behemoth. But as with Visa, the fund still owns a substantial position -- $305 million -- in shares of Coke.
Coke delivered strong second-quarter results earlier this summer, results that were largely due to growth in the company's international markets. With more than 200 countries in Coke's amazing distribution network, that should come as little surprise. In total, Coke's offerings make up around 3% of the 50 billion beverages that are consumed every day -- a substantial chunk of the world's drinks. And though the U.S. still contributes a major part of sales at 37%, the emerging markets now make up a larger piece of the firm's revenues.
Sales should continue to be strong in 2010 for this largely recession-resistant firm.
To see the rest of TCI's plays, check out the
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no position in stocks mentioned.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.