Tracking Bill Ackman's Pershing Square Portfolio - Q4 2020 Update

Summary

• Bill Ackman’s 13F portfolio value increased from $8.82B to ~$10B this quarter.
• Pershing Square marginally decreased most of the stakes this quarter.
• The largest three 13F positions are Lowe's Companies, Chipotle Mexican Grill, and Restaurant Brands. They together account for ~51% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory 13F Form filed on 2/16/2021. 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 for the fund’s moves during Q3 2020.

Ackman’s 13F portfolio value increased ~13% from $8.82B to ~$10B this quarter. The number of positions remained steady at 7. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~51% of the total portfolio value: Lowe's Companies, Chipotle Mexican Grill, and Restaurant Brands.

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. Pershing Square Holdings had underperformed the S&P 500 since its EOY 2012 inception. This changed in 2019 as they had an outstanding ~58% return. That was followed with an ~85% return in 2020. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~16.9% compared to ~9.6% for the S&P 500 index.

Note 1: As a closed end fund, Pershing Square Holdings has always traded at a discount to NAV. The discount narrowed to 23% from 29% as of mid-February following their inclusion in the FTSE 100 index in early December. It currently trades at ~$35 per share.

Note 2: in July 2020, Pershing Square sponsored the largest SPAC IPO to date, Pershing Square Tontine Holdings (PSTH). The offering had several retail-investor friendly attributes that made it stand out from the rest of the 400+ SPACs that came to market over the last year. They expect a deal to be announced soon. The stock trades at a large premium to trust value (~$20 trust value compared to the current trading price of $29.35).

Note 3: It was disclosed last March that liquidating market hedges set up using credit default swaps had netted them ~$2.6B. This was compared to ~$27M in premiums paid. This trade alone accounted for ~37% of the performance of the fund last year.

To learn more about Bill Ackman, check-out the book “Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff.”

Stake Increases:

None.

Stake Decreases:

Lowe's Companies (LOW): LOW is currently the largest position at ~20% of the portfolio. It was established in Q2 2018 at prices between $81 and $101 and increased by ~9% next quarter at prices between $95 and $117. There was also a ~40% stake increase in Q1 2020 at ~$84 per share. The stock currently trades at ~$160. Last three quarters have seen only minor adjustments.

Note: Pershing Square's cost-basis on LOW is ~$85 per share. In Pershing Square’s annual presentation in mid-February, they said LOW should earn $12 to $13 in earnings over the coming years.

Restaurant Brands International (QSR): The QSR stake is currently at ~15% of the portfolio. Pershing Square’s original cost-basis was ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. That was followed with a ~22% reduction in H1 2018 at prices between $53 and $64. The four quarters through Q3 2019 had also seen a ~28% selling at prices between $52 and $79. Last June, they increased the position by roughly two-thirds through forward contracts: $397.50M aggregate purchase price for a $44.20 per share cost-basis. The stock currently trades at ~$60. There was minor trimming this quarter.

Hilton Worldwide Holdings (HLT): The large ~15% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at ~$124. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. There was minor trimming in the last two quarters.

Note 1: Their overall cost-basis is ~$72 per share.

Note 2: In Q4 2018, Hilton Worldwide Holdings came back into the portfolio after a gap of eighteen months. The previous position was purchased in Q3 2016 and disposed a year later. Pershing Square has said that the new position was acquired at a better valuation compared to their previous purchase. Also, the business structure has transformed into a capital-light model because of the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).

Agilent Technologies (A): Agilent was a small ~4% of the portfolio stake established in Q3 2019 at prices between $66 and $78. Next quarter saw a large stake built at prices between $63 and $90. The stock currently trades at ~$122 and the stake is at ~14% of the portfolio. Last two quarters saw minor trimming.

Note: The analytical measurements business has an attractive razor-razorblade business model. The buy thesis is based on margin expansion and leverage opportunity.

Starbucks Corp. (SBUX): The ~11% of the 13F portfolio SBUX stake was established in October 2018 at a cost-basis of ~$51 per share compared to the current price of ~$108. Q4 2019 saw a ~40% selling at ~$86 while next quarter there was a ~85% stake increase at a cost-basis of ~$60 per share.

Kept Steady:

Chipotle Mexican Grill (CMG): CMG is a large top-three position at ~16% of the portfolio. The stake was established in Q3 2016 at a cost-basis of ~$405 per share. The position was sold down by ~30% in Q3 2018 in the high-400s price-range and that was followed with a ~17% trimming over the next four quarters. Q1 2020 also saw a one-third selling at ~$860 per share. The stock currently trades at ~$1442.

Note: Regulatory filings since the quarter ended show them selling ~75K shares at ~$1340 per share. They still own ~1.09M shares.

Howard Hughes Corp. (HHC): HHC is a ~15% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. Recent activity follows: Q3 2018 saw a ~3% trimming and that was followed with a ~40% reduction next quarter at prices between $90 and $124. There was a ~85% stake increase in Q4 2019 at a cost-basis of ~$115 per share because of conversion of total-return-swaps they owned. Q1 2020 saw the addition of ~10M shares at ~$50 per share through a private placement. The stock is currently at $94.87.

Note: Their beneficial ownership is currently at ~25% of the business.

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are other 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 held just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost-basis of $2.29 and 63.5M shares of FMCC at a cost-basis of $2.14. The combined investment outlay was ~$400M. FNMA & FMCC currently trade at ~$1.80 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amount to 21% of the total investment in the two GSEs. Pershing Square’s annual presentation in mid-February reaffirmed their view that the position is a valuable perpetual option on their eventual exit from conservatorship.

The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q4 2020:

Analyst’s Disclosure: I am/we are long PSTH, PSTHWS, FNMA, FMCC, PK. 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.

I am long Fannie/Freddie pfds.

Comments

[dan87951]

Is Ackman still holding after the recent court ruling?

[bazooooka]

Have enjoyed this one for years. Someday the NAV gap could even turn into a premium if Ackman keeps getting more right than wrong.

[gdacostap]

John - Please look at attached. Do you think Pershing has been adding FNMA through a foreign fund, Pershing Square Holdings Ltd.?
money.cnn.com/...

[John Vincent]

@gdacostap , looks consistent with the ~10% stake each of both FNMA & FMCC that they have held since 2013. I believe the link has the consolidated number under Owners section (PSCM) and the portion held within PSH in the Mutual Funds section.

All the best,
John.

[gdacostap]

@John Vincent Thanks John.

[Exile of the Mainstream]

SA just reported Ackman was invested in Coupang which IPOs today. Is it not in this portfolio?

[John Vincent]

@Exile of the Mainstream , the 13F report only shows US-listed securities owned. We know about others only if they choose to voluntarily disclose the information.

All the best,
John.

[Bonusplus]

Sounds like more and more fund managers are not going gaga with too many positions.

[Ron Murphree]

What is Pershing’s cost basis in the Fannie and Freddie preferreds?

[Fabien Hug]

I'm long PSTH.

[phil.lambert]

How much of a stake does Pershing square holdings have in psth. I didn’t see an amount listed in holdings?

[John Vincent]

@phil.lambert,

Thank you for your question. The stake they have in PSTH is via a $1B committed forward purchase agreement and another $2B at their discretion. The latest regulatory filings shows beneficial ownership as 50% - www.sec.gov/... .

All the best,
John.

[phil.lambert]

@John Vincent thank you. great article by the way

[Danese]

@John Vincent I wonder if the gains of NAV they recorded at PSH this year includes gains on the PSTH?

[9045082992]

Well done...I like his trimming of his longs and wish he steps it up.

He is short CDS again as rates are lower than they were pre-covid. Ackman says that's a hedge to offset risk of his long portfolio. If he makes 2 b on that, some clueless people will be whining that he cried on CNBC again.

[cdgingrich]

Thanks very much, John

[Steve Brissie]

Thanks, well written and informative article.