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 5/16/2022. 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 Q4 2021.
Ackman’s 13F portfolio value decreased ~4% from ~$10.78B to ~$10.39B this quarter. The number of positions increased from 7 to 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~51% of the total portfolio value: Lowes Companies, Chipotle Mexican Grill, and Hilton Worldwide.
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 compounded at ~50% in the three years through 2021. For 2022 through May 17th, they are down 18.5%. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~17% compared to ~10.4% for the S&P 500 index.
Pershing Square’s February investor call disclosed a new holding: 3.1M shares of Netflix (NFLX) acquired at $395 cost-basis. On April 20th, they disclosed the sale of that position in the low 220s. The loss reduced their YTD returns by ~4%. Netflix currently trades at $183.
Note 1: Pershing Square Holdings has always traded at a discount to NAV. It currently trades at $30.45 per share compared to NAV of $46.62.
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 SPACs. The stock traded at a vast premium to trust value until the UMG transaction fell through. PSTH currently trades below trust at $19.85. They have till July 23, 2022, to do a deal.
Note 3: Earlier this year, they disclosed the following regarding their hedging strategy, principles, and performance: “Principles: asymmetric payoff structures along with monetization that provides liquidity during periods of market dislocation. Strategy: Interest rate hedges from late 2020 to early 2022 as they believed Fed would raise rates earlier than anticipated. Performance: 18.5x return on $64M to $1.2B in 2005-2009 subprime crisis through CDS on MBIA, 96.3x return on $27M to $2.6B in 2020 COVID-19 through Index CDS on Investment Grade & High Yield Bonds, and 7.4x return on $188M to $1.4B in 2020-2022 through Out-of-the-money 2 year & 10 year swaptions.
Note 4: Pershing Square has a ~10% stake in Universal Music Group (OTCPK:UMGNF) at a cost-basis of ~€18 per share. It currently trades at ~€20.02.
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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 four quarters through Q2 2021 had seen a ~20% selling at prices between ~$136 and ~$211. The stock currently trades at ~$188. There was marginal trimming this quarter.
Note: Pershing Square's cost-basis on LOW is ~$85 per share.
Hilton Worldwide Holdings (HLT): The large ~15% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. This quarter saw a ~20% selling at prices between ~$129 and ~$158. The stock currently trades at ~$132.
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 following the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).
Restaurant Brands International (QSR): The QSR stake is a large 13.41% of the portfolio stake. 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 thru Q3 2019 had also seen a ~28% selling at prices between $52 and $79. In June 2020, they increased the position by roughly two-thirds thru forward contracts at $44.20 cost-basis. The stock currently trades at $50.29. There was marginal trimming this quarter.
Domino’s Pizza (DPZ): DPZ is a ~8% of the portfolio stake established in Q1 2021 at prices between ~$330 and ~$375 and the stock currently trades near the low end of that range at ~$336. They have a ~5.3% ownership stake in the business. This quarter saw marginal trimming.
Canadian Pacific Railway (CP): CP is a 2.34% of the portfolio position purchased last quarter at prices between ~$64.50 and ~$78 and the stock currently trades at $68.67. There was a minor ~5% stake increase this quarter.
Note: the position was not in their Q4 2021 13F report but was disclosed in an amended filing in March.
Chipotle Mexican Grill (CMG): CMG is a large ~17% of the portfolio position. 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. There was a ~7% trimming in Q1 2021 at ~$1340 per share. Q3 2021 saw a ~3% increase at ~$1910 per share. The stock currently trades at ~$1273.
Note: Regulatory filings since the quarter ended show them owning 1.105M shares of Chipotle. This is compared to 1.114M shares in the 13F report. The reduction happened at $1443.64.
Howard Hughes Corp (HHC): HHC is now a 13.58% of the 13F portfolio position. The stake was first established in 2010 as a result of its spin-off from GGP Inc. The vast majority of the current stake is from the addition of ~10M shares in Q1 2020 at ~$50 per share through a private placement. Q1 2021 saw a ~25% stake increase at prices between ~$78 and ~$102. The stock is currently at $85.58. Q3 2021 also saw a minor ~1% increase at $92 per share.
Note: They have a ~26% ownership stake in 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 ~$0.68 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. Their Q4 2021 Annual Investor Presentation had the following regarding Fannie/Freddie: “Remains confident of long-term value – believes re-privatization is an eventuality regardless of court outcomes”.
The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q1 2022:
Source: John Vincent. Data constructed from Pershing Square’s 13F filings for Q4 2021 and Q1 2022.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of PSTH, PSHZF, FNMA, FMCC either through stock ownership, options, or other derivatives. 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.
Additional disclosure: I am long Fannie/Freddie pfds.