This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square's U.S. stock portfolio on a quarterly basis. It is based on Ackman's regulatory 13F Form filed on 11/14/2013. Please visit our Tracking Bill Ackman's Pershing Square Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q2 2013.
Ackman's portfolio decreased around 6.5% from $10.95B to $10.28B this quarter. The number of positions reduced from 9 to 7. A very small position in Matson and a 6.09% position in JC Penney were eliminated and no new positions were added in the quarter. The portfolio remains heavily concentrated with a few large bets: the top five positions account for around 90% of the total portfolio value.
Per Pershing Square's Q3 2013 investor letter, the funds declined by more than 5% in Q3 2013 and had flat performance for the year. The below-par results are mostly due to two outsized bets that soured - J.C. Penney (JCP) long and Herbalife (HLF) short. To learn more about Bill Ackman, check-out the book "Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff".
J C Penney: JCP was a 6.09% of the U.S. long portfolio stake established in 2010 at a purchase price of around $25. JCP has been very volatile with the stock trading as high as $43 in February 2012 and dropping to as low as $6.24 last month. It currently trades at $8.69. Ackman resigned from J.C. Penney board on August 12th as a result of a disagreement with the CEO succession plan. Later that month, Ackman sold his entire position at around $12.90 per share. Per his Q3 2013 investor letter, Pershing Square incurred a loss of approximately 50% on this disposal.
Matson Inc. (MATX): MATX stake was acquired as part of its spin-off from Alexander & Baldwin Inc. (ALEX). The position was eliminated this quarter at prices between $25 and $29.24. Last two quarters saw a ~1% position getting reduced to an insignificantly small 0.05% position at prices between $21.25 and $27.41. The stock currently trades at $24.83 compared to the spin-off price of ~$26.
Air Products & Chemicals (APD): Last quarter, a new 8.44% of the U.S. long portfolio APD stake was purchased at prices between $92.80 and $96.59. The position was since doubled at prices between $91 and $107 per a July 31st Schedule 13D filing. The stake currently stands at 21.31% of the U.S. long portfolio - it is currently Ackman's second-largest position after Canadian Pacific Railway. At roughly $2.2B, this is the biggest activist stake ever for Pershing Square. The Q3 2013 investor letter disclosed that Ackman is having success with activism at APD - CEO John McGlade has agreed to retire by June 30, 2014 and three new members are set to join the company board, replacing three retiring directors. Pershing Square owns 9.8% of the shares outstanding in APD.
General Growth Properties (GGP): GGP is one of Ackman's biggest wins at Pershing Square. He acquired the stake during bankruptcy in Q2 2009 in the $1 price-range and the stock currently trades at $20.74! The stake was kept steady in Q1 2013 after it was increased by around 3.5% in Q3 2012 at prices between $17.20 and $20.99. Last quarter, the position was reduced by 9.3% at prices between $19.32 and $23.33. It was further reduced by ~48% this quarter at prices between $18.69 and $21.64. The position still accounts for 6.70% of Ackman's U.S. long portfolio. He is harvesting huge gains from the position.
Canadian Pacific Railway (CP): CP is his largest 13F position at 27.75% of the U.S. long portfolio. The stake was established in Q3 2011 with the bulk purchased in Q4 2011 at prices between $46.05 and $71.82. The stock currently trades at around $150. Ackman reigned in management and board changes at the company by winning a proxy battle in May last year. The position was marginally reduced this quarter at prices between $117 and $130. Ackman is sitting on large gains on this position.
Procter & Gamble Co (PG) & CALLS: PG was a huge ~24% of the U.S. long portfolio activist position established in Q2 2012 at prices between $59.27 and $67.57. The original position was through a combination of PG common stock and long-dated calls. The stake was increased by 28.55% in Q3 2012 at prices between $61.19 and $69.76. In Q4 2012, the long position was kept steady while the call options were reduced by one-third. The pattern continued in Q1 2013 as the call options were reduced by another 78%. Last quarter saw a huge reversal as the long position was drastically reduced while simultaneously increasing the position in the call options. This quarter saw the long-position getting reduced by ~75% at prices between $75.59 and $82.17. The stock currently trades at around $84.73. Ackman left the long calls position untouched and so the huge leveraged bet is still on. It is likely that Ackman was freeing up capital to raise liquidity in the face of losing trades in Herbalife (short - not a 13F holding) and J.C. Penney (long - see above).
The remaining positions were untouched during the quarter:
Beam Inc. (BEAM): BEAM is a spin-off from Fortune Brands and the stock is up around 35% since the spin-off in September 2011. Ackman acquired the stake in Fortune Brands in 2010 and his cost-basis is well below the spin-off price. It currently accounts for 13.10% of the U.S. long portfolio. Ackman is sitting on huge gains on this position as well.
Burger King Worldwide (BKW): BKW is a 7.29% of the U.S. long portfolio stake that was established in Q3 2012 at prices between $13.03 and $15.88. The position was increased marginally in Q1 2013 at prices between $16.31 and $19.95. The stock currently trades at $20.39. Ackman's investment in Burger King Worldwide started with a transaction to acquire 29% of the company for $1.4B in April 2012. The acquisition was done through Justice Holdings, a British company controlled by Ackman. That stake is not reported in the 13F filings as Justice Holdings is a UK listed investment vehicle - it is not a 13F security. Including that, the investment in BKW rivals his stakes in Canadian Pacific Railway and Air Products & Chemicals, his largest positions.
Howard Hughes Corp (HHC): HHC is a small 3.90% of the U.S. long portfolio position that was first purchased in 2010. The stake has remained untouched during the whole period. The stock is up over 52% YTD. Ackman called HHC one of the best kept secrets on Wall Street at the Harbor Investor Conference in February 2013.
The spreadsheet below highlights changes to Pershing Square's U.S. stock holdings in Q3 2013: