This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square's US long portfolio on a quarterly basis. It is based on Ackman's regulatory 13F Form filed on 02/16/2016. 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 Q3 2015.
Ackman's US long portfolio decreased 10.68% from $13.95B to $12.46B this quarter. The number of positions remained steady at 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for 53.15% of the total portfolio value: Air Products & Chemicals, Zoetis Inc., and Mondelez International.
In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (OTCPK:PSHZF), a public entity that debut in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. 2014 was a blockbuster year with a 40% return while 2015 return was at negative 20.5% net-of-fees. Returns since the EOY2012 inception of Pershing Square Holdings are at 22.2% compared to 52.5% for the S&P 500 index over the same period. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum.
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Valeant Pharmaceuticals (NYSE:VRX): VRX was Ackman's largest position at 24.90% of the US long portfolio as of last quarter. This quarter saw a ~15% reduction. The stake was established in Q1 2015 at a cost-basis of $196. The stock currently trades at $94.56.
Note: A 2/5/2016 regulatory 13D/A filing showed Pershing Square owning 30.71M shares (9% of the business). This is compared to 16.59M shares in the 13F. The difference consists of 5M shares newly purchased in the mid-90s and 9.12M shares in call options.
Air Products & Chemicals (NYSE:APD): In Q2 2013, a new 8.44% of the US long portfolio APD stake was purchased at prices between $92.80 and $96.59. By Q4 2013, the position was more than doubled at prices between $91 and $107. It has since been kept steady. The stock currently trades at $133 and the stake stands at 21.46% of the US long portfolio - it is Ackman's largest 13F position.
Note: Pershing Square's ownership stake in APD is ~10%. It is an activist stake - the CEO was replaced and three new board members were appointed in June 2014.
Canadian Pacific Railway (NYSE:CP): CP is Pershing Square's fourth-largest 13F position at 14.28% of the US 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 $130. The original position was reduced by ~26% in Q4 2013 at prices between $123 and $157 and ~19% in Q2 2014 at prices between $144 and $185.
Note: CP is a ~9% of the business activist stake. Ackman discussed the position in his 2015 letter to investors. Basically, he admitted choosing not to reduce the stake when the stock traded at C$240 per share as a mistake.
Howard Hughes Corp (NYSE:HHC): HHC is a small 3.24% of the US long portfolio position that was established in 2010 as a result of its spin-off from General Growth Properties (NYSE:GGP). The stake has remained untouched during the whole period. The stock returned ~63% in 2013 but is down ~25% since. It currently trades at $90.61.
Note: A regulatory 13D/A filing on Jan 4, 2016 showed Ackman's ownership at ~5.48M shares (13.2% of business) compared to ~3.6M shares in the 13F: the filing included ~1.92M shares in currently exercisable warrants.
Mondelez International (NASDAQ:MDLZ): MDLZ is a large (top-three) 15.61% (43.37M shares) of the 13F portfolio stake established last quarter at a cost-basis in the low-40s. Beneficial ownership including forward purchase contracts and call options (2017 March thru August maturity/expiry) were at 120.27M shares as of September 2015 (~7.5% of business). Ackman's 2015 letter (Jan 2016) said the MDLZ exposure was reduced to fund the purchase of more Valeant shares. The stock currently trades at $39.81.
Platform Specialty Products (NYSE:PAH): On 01/23/2014, Ackman disclosed a huge new stake in Platform Specialty Products Corporation in a 13G filing. Pershing Square was a PAH investor prior to its NYSE IPO. Q4 2014 saw a ~28% stake increase at prices between $20.97 and $27.74. Ackman's cost-basis is around $14. The stock currently trades well below that at $7.01. Ackman controls ~20% of the business.
Note 1: The stock was down ~45% in 2015 and is down another ~45% YTD. Ackman discussed the position in his 2015 letter to investors: it was a mistake to increase position at $25 per share - assigned too much platform value to the business - "platform value" is an ephemeral form of value as it requires low-cost capital, uniquely talented members of management, and the pricing environment for transactions.
Note 2: PAH has seen significant churn in upper management: CEO Dan Leever (~30 years at MacDermid) announced his retirement and there were several other resignations and role changes.
Restaurant Brands International (NYSE:QSR) previously Burger King Worldwide: QSR is a ~11.40% of the US long portfolio stake. Tim Hortons and Burger King Worldwide merged and renamed the resultant entity as Restaurant Brands International. Pershing Square had a huge investment in Burger King and those shares got exchanged for QSR shares. The original Burger King stake was established in Q3 2012 at prices between $13.03 and $15.88. The stock currently trades at $34.51.
Zoetis Inc. (NYSE:ZTS): ZTS was a small 1.52% of the US long portfolio position (5.5M shares) established in Q3 2014 at prices between $31.79 and $37.20. Q4 2014 saw a whopping 650% stake increase at prices between $35 and $45. The overall cost-basis is around $37. Ackman controls 8.3% of the business and the position is now a top-three stake at 16.09% of the portfolio. The stock currently trades at $41.80.
Note 1: Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are other US long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not 13F securities, they are not listed in the 13F report. Ackman holds just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost-basis of ~$2.30 and 63.5M shares of FMCC at a cost-basis of ~$2.14. The combined investment outlay was ~$400M. FNMA & FMCC both currently trade at $1.30 per share. In the Ira Sohn conference in August 2014, Ackman said his conservative case values FNMA & FMCC at ~$23 per share each. Other Hedge Funds involved include Perry Capital and Fairholme Capital.
Note 2: Ackman has large short positions although Herbalife (NYSE:HLF) is the only one publicly known - there is no regulatory requirement to disclose short positions and so only the ones that Ackman voluntarily discloses are known.
Note 3: In June, Pershing Square revealed a ~22% ownership stake in London listed SPAC Nomad Holdings at a cost of ~$350M. The latest 13G regulatory filing on 02/12/2016 shows Pershing Square owning 33.33M shares (18.7% of business) of Nomad Foods (NYSE:NOMD).
The spreadsheet below highlights changes to Pershing Square's US stock holdings in Q4 2015:
Disclosure: I am/we are long FMCC, FNMA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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