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 05/16/2016. 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 Q4 2015.
Ackman's US long portfolio decreased 28.95% from $12.46B to $8.85B this quarter. The number of positions increased from 8 to 9. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for 59.01% of the total portfolio value: Zoetis, Canadian Pacific Railway, and Restaurant Brands 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. Pershing Square Holdings has underperformed the S&P 500 since its EOY 2012 inception. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum.
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New Stakes:Nomad Foods Ltd. (NYSE:NOMD): In June 2015, Pershing Square revealed a ~22% ownership stake in London listed SPAC Nomad Holdings at a cost of ~$350M. After a couple of acquisitions (Iglo Group & Findus Group) last year, the business moved its listing from London Stock Exchange to New York Stock Exchange in January this year. Pershing Square controls ~19% (33.33M shares) of the company. The stock currently trades at $8.24.
Stake Decreases: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 had since been kept steady. This quarter saw a ~63% stake reduction at prices between $116 and $145. The stock currently trades at $142 and the stake stands at 12.37% of the US long portfolio.
Note 1: Pershing Square also has a 12.95M share position in APD American style call options. Including that, the ownership stake is at 9.5% of the business (20.55M shares).
Note 2: Pershing Square's activism led to the replacement of the CEO and the appointment of three new board members in June 2014. Last year, Air Products announced plans to spinoff Versum Materials on or before September this year.
Mondelez International (NASDAQ:MDLZ): MDLZ is a large 10.40% of the 13F portfolio stake established in Q3 2015 at a cost-basis in the low-40s. This quarter saw a ~47% reduction at prices between $36.34 and $44.84. The stock currently trades at $43.24.
Note 1: Pershing Square also has a 65.26M share position in MDLZ American style call options. Including that, the ownership stake is at 5.6% of the business (88.2M shares).
Note 2: Ackman's 2015 annual letter said the MDLZ exposure was reduced to fund the purchase of more Valeant shares.
Stake Increases:Restaurant Brands International (NYSE:QSR) previously Burger King Worldwide: QSR is a top-three ~17.17% 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 $40.24. This quarter saw a minor increase.
Valeant Pharmaceuticals (NYSE:VRX): VRX was Ackman's largest position at 24.90% of the US long portfolio as of Q3 2015. Last quarter saw a ~15% reduction while there was a ~30% increase this quarter. The stake was established in Q1 2015 at a cost-basis of $196. The stock currently trades at $27.86.
Note: A 3/28/2016 13D/A regulatory filing shows Pershing Square owning 30.71M shares (9% of the business). This is compared to 21.59M shares in the 13F. The difference is the 9.12M shares in call options that they also own.
Kept Steady:Canadian Pacific Railway (NYSE:CP): CP is Pershing Square's second-largest 13F position at 20.89% 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 $132. 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 1: The position was significantly reduced after the quarter ended. Regulatory 13D/A & Form 4 filings on 4/22/2016 show them owning 9.84M shares (6.4% of the business). 4.1M shares were disposed at $148.25.
Note 2: 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 4.27% 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 ~13% since. It currently trades at $104.
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.
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 $8.95. Ackman controls ~20% of the business.
Note 1: The stock was down ~45% in 2015 and is down another ~30% 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.
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. It is now the largest 13F stake at 20.94% of the portfolio. The stock currently trades at $46.96.
Note: The position was significantly reduced after the quarter ended. Regulatory Form 4 & 13D/A filings from 5/9/2016 shows them owning 24.97M shares (5% of the business). 16.85M shares were sold at $46.55 in a block sale.
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 currently trade at $1.85 and $1.63 per share respectively. 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.
Bill Ackman also has a large short book. It was disclosed earlier this year that he is short the Chinese Yuan (thesis: protection to the portfolio in the event of unanticipated weakness in the Chinese economy) and the Saudi Riyal (thesis: inexpensive way to hedge against a continued decline in energy prices). Herbalife (NYSE:HLF) is the only other short that is publicly known. There is no regulatory requirement to disclose short positions and so only ones that Ackman voluntarily discloses are known.
The spreadsheet below highlights changes to Pershing Square's US stock holdings in Q1 2016:
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
