Updated on September 16th, 2021 by Nikolaos Sismanis
Pershing Square Capital is a New York-based hedge fund founded in 2004 and still managed by legendary investor Bill Ackman.
Pershing Square is unique, as it has been structured as a closed-end fund whose shares are publicly traded but still managed like a hedge fund. According to the company’s latest 13F report, Pershing Square has around $10.7 billion worth of public equity holdings.
Investors following the company’s 13F filings over the last 3 years (from mid-August 2018 through mid-August 2021) would have generated annualized total returns of 30.69%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.08%.
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
You can download an Excel spreadsheet (with important metrics that matter) of Pershing Square’s current 13F equity holdings below:
Keep reading this article to learn more about Pershing Square.
Table Of Contents
Pershing Square’s Legendary Manager Bill Ackman
Since the fund’s inception, Pershing Square has been primarily managed by Bill Ackman, who initially funded the company with $54 million from his personal funds.
The billionaire hedge fund manager has gained legendary status in the investing community, having executed many successful and creative investment plays.
One such bet which dominated headlines last year involved him turning $27 million into $2.6 billion. Ackman used credit protection on investment-grade and high-yield bond indexes in his controversial bet that the coronavirus would tank the market.
The trade eventually paid off at a time when most portfolios were recording losses. The uniquely structured position was so successful that Wall Street journalists described Ackman’s bet as the single best trade of all time.
Mr. Ackman has had several other noteworthy achievements throughout his career. In 2011 Pershing Square acquired a 14.2% stake in Canadian Pacific Railway Limited (CP). Ackman eventually won a fierce battle with the existing board to install a new CEO and overhaul the company’s business strategy. Over the next 3 years, CP shares quadrupled. This successful investment netted the activist hedge fund a total of $2.6 billion in profit.
Finally, while Ackman’s coronavirus bet generated a sizeable return, it’s certainly not Pershing Square’s first. In 2009, Ackman said that he realized a 13-fold return in General Growth Properties, which was on the brink of bankruptcy amid the Great Financial Crisis. By accomplishing a 7-year extension of the company’s $27.3 billion in debt, the mall owner was able to survive and eventually buy back Pershing Square’s stake. Ackman’s risky bet is now the second-best in his investing career, turning $60 million into $1.6 billion, exceeding his initial expectations.
Current Portfolio Holdings
Unlike many hedge funds, which will heavily diversify their portfolio holdings by investing in numerous equities, Pershing Square’s philosophy has always involved betting on a few high conviction ideas. All $10.4 billion of its public-equity holdings are currently invested in only 7 stocks.
Pershing Square’s current holdings are quite similar to those in its previous 13F filing. The fund only sold tiny parts of its stakes while adding significantly to its Howard Hughes position. It also made the following significant portfolio changes:
- No new buys as of Pershing Square’s latest filing.
- No new sells as of Pershing Square’s latest filing.
Pershing Square holds the following equities:
Chipotle Mexican Grill (CMG): At around 18.1% of Pershing Square’s equity holdings is Chipotle. Ackman has been buying shares since 2016, betting heavily on the fast-food chain. Shares have more than quadrupled since, with Pershing Square still holding around 3.86% of the company’s total shares.
With an average estimated purchasing price of around $386, Chipotle has been one of Pershing Square’s most successful picks, currently trading at ~$1905/share. The fund made no changes to its position during the past quarter.
The company has been in an extended growth phase, with revenues moving higher over the past year. While the pandemic adversely affected the restaurant industry, Chipotle benefited greatly amid growth in delivery orders. Chipotle’s growth slightly decelerated last year, though it quickly rebounded to a double-digit rate.
Lowe’s (LOW): Currently occupying just under 1/5 of the fund’s public-equities portfolio, Lowe’s is Pershing Square’s largest position. Ackman has been building the position since 2018 in hopes that Lowes’s market share in the home improvement space will grow against Home Depot (HD). The position was trimmed notably, by around 15% as of Pershing Square’s latest f13 filing. Mr. Ackman has paid an average estimated price of around $95 while building the position. Shares are currently trading above $204, making Lowes’ a winning bet over the past couple of years.
The company has proven resilient, posting growing revenues during the past year, as consumers focus on home improvement amid the stay-at-home economy. Over the past four quarters, the company has generated nearly $94.6 billion in sales, the highest in its history.
Additionally, Lowe’s net income margins have been expanding due to the company achieving higher economies of scale, hitting new all-time highs as of the past four quarters, at 7.41%. The company’s margins have never been very juicy due to being a retailer, but at such sales volumes, Lowe’s LTM (Last Twelve Month) profitability has hit record levels, coming in at $7.01 billion in profits during this period, also the highest in its history.
It’s worth noting that Lowe’s is a Dividend King, counting 58 years of consecutive annual dividend increases. Despite the company’s mature profile, Lowe’s keeps on returning capital to its shareholders very aggressively. This past quarter, the company announced its 59th annual dividend increase hiking its quarterly dividend by a whopping 33.3% from $0.60 to $0.80. The company surprised investors by this hike, which is the largest one over the past 12 years, and far larger than its 10-year CAGR of 18.6% amid a comfortable payout ratio.
Additionally, the company has been repurchasing its stock very rapidly, retiring more than half of its outstanding shares over the past 15 years. As a result, Pershing Square’s stake is likely to keep expanding even if the fund does not grow its position further, as continued buybacks gradually result in Pershing owning a larger percentage of the company over time.
Agilent Technologies (A): Occupying just over 16.8% of Pershing Square’s total holdings is Agilent Technologies. Mr. Ackman has been consistently increasing his exposure to the company, currently owning around 3.8% of the outstanding shares. As he explained in his annual letter to shareholders, Mr. Ackman expects “the net impact of the virus on Agilent’s long-term intrinsic value to be minimal.”
During its latest earnings report, the company reported revenues of $1.56 billion, 26% higher YoY. Overall, revenues and net income remained robust during the pandemic, causing shares to be currently trading at all-time high levels. Still, investors should be wary of the stock’s expanded valuation, which may face a possible correction moving forward.
The company has grown its dividend annually over the past 9 years, showcasing a 3-year dividend-per-share compound annual growth rate of 10%. However, the yield remains tiny as the company prefers to allocate its capital returns towards stock buybacks.
Agilent has repurchased nearly 1/3 of its outstanding shares since 2008. Strong buybacks seem to be a sought-after characteristic in Mr. Ackman’s investments, which can help grow Pershing Square’s ownership percentage in its investments in a natural and gradual way.
Hilton Worldwide Holdings (HLT): Pershing Square’s strategy of holding large chunks of major corporations is also reflected in HLT, in which Mr. Ackman has bought up a 4.6% stake. Mr. Ackman has commented that while the pandemic may have adversely impacted the hotel industry (and it continues to do so), it should also cause independent hotels to seek affiliation with global brands like Hilton, which will contribute to its long-term growth prospects.
The company further benefits from a capital-light economic model and a strong balance sheet. The position was trimmed by less than 1% during the quarter. Shares are currently trading near all-time high levels, despite the initial catastrophe-like concerns during the COVID-19 outbreak, proving Mr. Ackman’s conviction right.
Shares are currently trading ~35 times their forward P/E. However, which is definitely an expanded valuation, which could undergo a potential correction. It’s also worth noting that the company has around $1.04 billion in cash and equivalents in its war chest, which should be proven adequate for management to refuel growth once the travel industry recovers while ensuring that Hilton does not face any solvency if such as recovery takes longer than expected.
Restaurant Brands International (QSR): Comprising just under 13.7% of the fund’s holding is Restaurant Brands. Ackman kept Pershing’s stake constant quarter-over-quarter, now holding around 7.68% of the company’s shares. After shares lost more than half of their value during March’s coronavirus selloff, Ackman’s investment has been rather successful, with the stock regaining most of its value from its pre-COVID-19 levels.
While QSR’s top & bottom line declined during this past year amid disruption in operations, the company has remained profitable, currently trading at a forward P/E of ~21.7.
Howard Hughes Corporation (HHC): Howard Hughes is weighted at 10.8% of Pershing’s portfolio. Mr. Ackman increased his position by 158% between 2019-2020, but held it constnat in Pershing Square’s latest 13F filing. Pershing Square is holding nearly 25% of HHC’s shares, significantly backing the Dallas-based property manager.
While Mr. Ackman’s picks usually turn into very successful investment ideas, it’s worth mentioning that Howard Hughes has been struggling as of late, unable to post consistent profits. Also, while the company has a robust cash position of just over $1B, which is quite large considering its $5 billion market cap, it also has $4.49 billion of long-term debt in its balance sheet.
Domino’s Pizza Inc (DPZ): Pershing Square currently owns 5.53% of the international pizza behemoth. The company keeps expanding its store count, which currently numbers more than 17,800 locations.
What’s astonishing is that 98% of these locations are franchised, which means that Domino’s receives a steady stream of royalties that grows over time without the company having to finance these locations itself and undertake the operational risks attached. The current royalty fee is 5.5% on sales.
Therefore, even if a store has its margins squeezed, Domino’s revenues are not affected. Over time, royalties grow backed by additional store openings, enhanced same-store sales, and price increases.
Revenues continued growing over the past year, despite the ongoing pandemic, which is a testament to the company’s operational resiliency and strong brand value. Shares are currently trading at a forward P/E of just over 35.5, which considering Domino’s growth prospects, fantastic business model, and potential for a margin expansion, makes for quite a reasonable valuation multiple.
Additionally, the company has been growing its dividend annually since 2013, featuring a 3-year CAGR of 19.4%. Domino’s is also another one of Pershing Square’s holdings that executes strong buybacks. The company has also retired around 1/3 of its shares over 5 years, which is quite amazing.
Pershing Square is an unusual hedge fund, which the public has the opportunity to buy into due to its public market listing. Run by renowned investor Bill Ackman, the company has massively outperformed the market over the past few years through its uniquely structured plays and high conviction ideas.
While management’s annual fee of 1.3% (previously 1.5%) in NAV and 16% incentive fee may be quite rich, the company’s long-term performance has been well worth it.
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