Pershing Square | Bill Ackman's 8 Stock Market-Beating Portfolio

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Pershing Square | Bill Ackman’s 8 Stock Market-Beating Portfolio


Updated on June 23rd, 2022 by Nikolaos Sismanis

Pershing Square Capital Management is a New York-based hedge fund founded in 2004 and still managed by legendary investor Bill Ackman.

Pershing Square is unique, as it has been structured as a closed-end fund whose shares are publicly traded but still managed like a hedge fund. According to the company’s latest 13F report, Pershing Square has around $10.4 billion worth of public equity holdings.

Investors following the company’s 13F filings over the last 3 years (from mid-May 2019 through mid-May 2022) would have generated annualized total returns of 13.6%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 16.1%.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

You can download an Excel spreadsheet (with important metrics that matter) of Pershing Square’s current 13F equity holdings below:

 

Keep reading this article to learn more about Pershing Square.

Table Of Contents

Pershing Square’s Legendary Manager Bill Ackman

Investors might be curious if Pershing Square is associated with Pershing Square Holdings (PSHZF). Pershing Square Holdings is the publicly traded closed-end fund that is investable. Pershing Square Capital Management is the ‘investment manager’ of the fund. The investment manager files the 13F reports.

Since the fund’s inception, Pershing Square has been primarily managed by Bill Ackman, who initially funded the company with $54 million from his personal funds.

The billionaire hedge fund manager has gained legendary status in the investing community, having executed many successful and creative investment plays.

One such bet which dominated headlines last year involved him turning $27 million into $2.6 billion. Ackman used credit protection on investment-grade and high-yield bond indexes in his controversial bet that the coronavirus would tank the market.

The trade eventually paid off at a time when most portfolios were recording losses. The uniquely structured position was so successful that Wall Street journalists described Ackman’s bet as the single best trade of all time.

Mr. Ackman has had several other noteworthy achievements throughout his career. In 2011 Pershing Square acquired a 14.2% stake in Canadian Pacific Railway Limited (CP). Ackman eventually won a fierce battle with the existing board to install a new CEO and overhaul the company’s business strategy. Over the next 3 years, CP shares quadrupled. This successful investment netted the activist hedge fund a total of $2.6 billion in profit.

Finally, while Ackman’s coronavirus bet generated a sizeable return, it’s certainly not Pershing Square’s first. In 2009, Ackman said that he realized a 13-fold return in General Growth Properties, which was on the brink of bankruptcy amid the Great Financial Crisis. By accomplishing a 7-year extension of the company’s $27.3 billion in debt, the mall owner was able to survive and eventually buy back Pershing Square’s stake. Ackman’s risky bet is now the second-best in his investing career, turning $60 million into $1.6 billion, exceeding his initial expectations.

Current Portfolio Holdings

Unlike many hedge funds, which will heavily diversify their portfolio holdings by investing in numerous equities, Pershing Square’s philosophy has always involved betting on a few high conviction ideas. All $10.4 billion of its public-equity holdings are currently invested in only 6 stocks.

Pershing Square’s current holdings are quite similar to those in its previous 13F filing. The fund only sold tiny parts of its stakes while adding significantly to its Howard Hughes position. It also made the following significant portfolio changes:

New Buys:

New Sells:

Pershing Square’s top 8 largest holdings as of its latest 13F filing are the following:

Lowe’s (LOW):

Currently occupying just under 1/4 of the fund’s public-equities portfolio, Lowe’s is Pershing Square’s largest position. Ackman has been building the position since 2018 in hopes that Lowes’s market share in the home improvement space will grow against Home Depot (HD). The position was left relatively unchanged as of Pershing Square’s latest f13 filing. Mr. Ackman has paid an average estimated price of around $96 while building the position. Shares are currently trading above $175, making Lowes’ a winning bet over the past couple of years.

The company has proven resilient, posting growing revenues during the past year, as consumers focus on home improvement. This comes as a surprise as the working-from-home economy provided a one-off boost in 2020. Hence, seeing sales further increase in 2021 was quite remarkable. In fact, last year the company generated nearly $96.3 billion in sales, the highest in its history.

Additionally, Lowe’s net income margins have been expanding due to the company achieving higher economies of scale, hitting new all-time highs as of the past year, at 8.77%. The company’s margins have never been very juicy due to being a retailer, but at such sales volumes, Lowe’s profitability also hit record levels, coming in at $8.42 billion in profits in 2021, also the highest in its history. While concerns over the current macroeconomic turmoil’s effects on consumers purchasing power has spooked investors lately, the company reported robust results in its latest Q1 2022 results.

It’s worth noting that Lowe’s is a Dividend King, counting 60 years of consecutive annual dividend increases. Despite the company’s mature profile, Lowe’s keeps on returning capital to its shareholders very aggressively. Earlier in May, the company announced its 60th annual dividend increase hiking its quarterly dividend by a whopping 31.3% from $0.80 to $1.05. The company surprised investors with this hike, which came after the substantial hike of 33.3% in May of last year.

Additionally, the company has been repurchasing its stock very rapidly, retiring more than half of its outstanding shares over the past 16 years. As a result, Pershing Square’s stake is likely to keep expanding even if the fund does not grow its position further, as continued buybacks gradually result in Pershing owning a larger percentage of the company over time.

Pershing Square’s position in Lowe’s remained unchanged during the last quarter.

Chipotle Mexican Grill (CMG):

At around 16.8% of Pershing Square’s equity holdings is Chipotle. Ackman has been buying shares since 2016, betting heavily on the fast-food chain. Shares have nearly quadrupled since, with Pershing Square still holding around 3.97% of the company’s total shares.

Related: The Best Fast Food Stock Now: Ranking The 6 Biggest U.S. Fast Food Stocks

With an average estimated purchasing price of around $422, Chipotle has been one of Pershing Square’s most successful picks, currently trading at ~$1281/share.

The company has been in an extended growth phase, with revenues moving higher over the past year. While the pandemic adversely affected the restaurant industry, Chipotle benefited greatly amid growth in delivery orders. Chipotle’s growth slightly decelerated last year, though it remains at robust a double-digit rate.

Pershing Square’s position in Chipotle Mexican Grill remained unchanged during the last quarter.

Hilton Worldwide Holdings (HLT):

Pershing Square’s strategy of holding large chunks of major corporations is also reflected in HLT, in which Mr. Ackman has bought up a 3.6% stake. Mr. Ackman has commented that while the pandemic may have adversely impacted the hotel industry (with its pre-pandemic levels yet to be reached), it should also cause independent hotels to seek affiliation with global brands like Hilton, which will contribute to its long-term growth prospects.

The company further benefits from a capital-light economic model and a strong balance sheet. The position was boosted by less than 1% during the quarter. Shares are currently trading near all-time high levels, despite the initial catastrophe-like concerns during the COVID-19 outbreak, proving Mr. Ackman’s conviction right.

Hilton’s top line has been gradually recovering over the past few quarters, as the pandemic has been gradually fading away. However, considering the risks attached to the currently shaky macroeconomic environment, shares could be still somewhat expensive based on the current forward P/E of 24.6.

Pershing Square’s position in Hilton Worldwide International was trimmed by 20% during the last quarter.

Restaurant Brands International (QSR):

Comprising just under 14.3% of the fund’s holding is Restaurant Brands. The find is now holding around 7.70% of the company’s shares. After shares lost more than half of their value during March of 2020’s coronavirus selloff, Ackman’s investment has been rather successful, with the stock regaining most of its value from its pre-COVID-19 levels.

QSR’s revenues grew further last year, while the company has remained profitable. The stock is currently trading at a forward P/E of ~16, offering a yield close to 4.5%.

Pershing Square’s position in Restaurant Brands International remained mostly unchanged during the last quarter.

Howard Hughes Corporation (HHC):

Howard Hughes is weighted at 13.5% of Pershing’s portfolio. Mr. Ackman increased his position by 158% between 2019-2021. Pershing Square is holding just over 25% of HHC’s shares, significantly backing the Dallas-based property manager.

While Mr. Ackman’s picks usually turn into very successful investment ideas, it’s worth mentioning that Howard Hughes has been struggling as of late, unable to post consistent profits. Also, while the company has a robust cash position of just over $688 million, which is quite large considering its $3.32 billion market cap, it also has $4.68 billion of long-term debt on its balance sheet.

Pershing Square’s position in Howard Hughes remained unchanged during the last quarter.

Domino’s Pizza Inc (DPZ):

Pershing Square currently owns 5.73% of the international pizza behemoth. The company keeps expanding its store count, which currently numbers more than 17,800 locations.

What’s astonishing is that 98% of these locations are franchised, which means that Domino’s receives a steady stream of royalties that grow over time without the company having to finance these locations itself and undertake the operational risks attached. The current royalty fee is 5.5% on sales.

Therefore, even if a store has its margins squeezed, Domino’s revenues are not affected. Over time, royalties grow backed by additional store openings, enhanced same-store sales, and price increases.

Revenues continued growing over the past year, despite ongoing challenges, which is a testament to the company’s operational resiliency and strong brand value. Shares are currently trading at a forward P/E of just around 28.8. Considering Domino’s growth prospects, fantastic business model, and potential for a margin expansion, this is a rich but reasonable valuation multiple.

Additionally, the company has been growing its dividend annually since 2013, featuring a 5-year CAGR of 19%. Domino’s is also another one of Pershing Square’s holdings that executes strong buybacks. The company has also retired around 1/3 of its shares over 5 years, which is quite impressive.

Pershing Square’s position in Domino’s Pizza was trimmed by 1% during the last quarter.

Netflix, Inc. (NFLX):

Netflix needs no introduction. The video-on-demand streaming company grew from a small platform to a global industry behemoth over the past decade, now numbering 222 million paying households. However, concerns over the company’s growth prospects have risen lately, with revenue growth coming in at 9.8% in its most recent results – the lowest rate since 2012. Competition in the video streaming space has soared lately, upsetting Netflix’s first-mover advantage. As the industry is getting increasingly saturated, we could see revenue growth even starting to decline.

Mr. Ackman has likely a different opinion, as he initiated a position in Netflix just last quarter, now holding 0.7% of the company’s outstanding shares. With the stock plummeting uncontrollably, Mr. Ackman has already lost substantially on this position. He purchased shares at an average price of $374, while the stock currently hovers near $177. Still, the stock has plunged so quickly that it could rebound as fast assuming it proves the market wrong and Netflix reestablishes its dominance in the industry going forward.

Netflix is Pershing Square’s seventh-largest position, accounting for 6.7% of its total holdings.

Canadian Pacific Railway Limited (CP):

Canadian Pacific Railway shares a long history with Pershing Square. Betting on the company in 2011 has been one of the fund’s most successful activist campaigns. Mr. Ackman and his team battled an extended and difficult proxy fight, managing to replace most of Canadian Pacific’s board. In fact, Pershing Square’s influence end up having a far better effect on the company than anyone could have expected. The fund created substantial value both for its own investors and for Canadian Pacific investors in general. When Pershing Square exited this investment in 2016, it had already generated a market-beating 153% return. The S&P500 returned 70.13% during the same period.

In mid-March, Pershing Square’s announced that it has now become again a shareholder in the company that it helped overhaul through a 2.8 million-share equity stake valued close to $216 million at the stock’s current price levels. Thus, Pershing Square has now become a top-20 shareholder in Canadian Pacific.

The company owns and operates some of the most critical railway infrastructure assets spanning from Canada to Mexico. With the ongoing supply chain persisting driven by logistic bottlenecks, it makes sense that Mr. Ackman has chosen to invest in the company in the space he is the most familiar with.

Canadian Pacific is currently in a transitory phase, as management is focused on integrating the company with Kansas Southern Railway, following the recent merger agreement. Hence, share buybacks and dividend growth have been paused. Over the next 24 months, Canadian Pacific will be paying down the acquisition debt. The buyback and dividend growth will resume when the debt-to-EBITDA ratio declines to the 2.5x target level.

With their comprehensive experience revolving around Canadian Pacific’s business model and value-unlocking financial mechanisms, Mr. Ackman and his time could once again have a detrimental effect on the company’s capacity to deliver market-beating returns. While it’s still early to tell, it will be very interesting to see how Pershing Square is going to leverage Canadian Pacific’s ongoing merger with Kansas Southern during the ongoing challenging transportation industry.

Canadian Pacific is Pershing Square’s eighth-largest position, accounting for 2.4% of its total holdings.

Final Thoughts

Pershing Square is an unusual hedge fund, which the public has the opportunity to buy into due to its public market listing. Run by renowned investor Bill Ackman, the company performed rather vigorously over the past few years through its uniquely structured plays and high-conviction ideas. It has still underperformed the S&P500, nonetheless.

While management’s annual fee of 1.3% (previously 1.5%) in NAV and 16% incentive fee may be quite rich, considering investors get exposure to Mr. Ackamn’s expertise, it may be well worth it.

Additional Resources:

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

 

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