"Tracking Bill Ackman’s Pershing Square Portfolio – Q1 2021 Update"
"Bill Ackman’s 13F portfolio value increased from ~$10B to ~$10.46B this quarter.Pershing Square added Domino’s Pizza and increased Howard Hughes Corporation while dropping Starbucks.The largest three 13F positions are Lowes Companies, Hilton Worldwide Holdings, and Restaurant Brands International. They together account for ~52% 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  filed on 5/17/2021. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q4 2020.Ackman’s 13F portfolio value increased ~4.5% from ~$10B to ~$10.46B 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 ~52% of the total portfolio value: Lowes Companies, Hilton Worldwide Holdings, and Restaurant Brands.In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (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 a ~85% return in 2020. YTD through April, the return was 11.8%. 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 (PSHZF) has always traded at a discount to NAV. The discount narrowed to 24% from 29% as of mid-May following their inclusion in the FTSE 100 index in early December. It currently trades at $36.25 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. The stock currently trades at a significant premium to trust value (~$20 trust value compared to the current trading price of $25.50). During an interview earlier this month, Ackman disclosed that they have been working on a SPAC deal from November and that an announcement is possible in the coming weeks.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 “”.New Stakes:Domino’s Pizza (DPZ): DPZ is a ~7% of the portfolio stake established this quarter at prices between ~$330 and ~$375 and the stock currently trades at ~$429. They have a ~5.3% ownership stake in the business.Stake Disposals: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 ~$111. 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. The disposal this quarter was at prices between ~$97 and ~$111.Stake Increases:Howard Hughes Corp (HHC): HHC is now a 12.25% 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. This quarter saw a ~25% stake increase at prices between ~$78 and ~$102. The stock is currently at ~$104.Note: Their beneficial ownership is ~25% of the business.Stake Decreases:Lowes Companies (LOW): LOW is currently the largest position at ~22% 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 ~$193. Last two quarters saw minor trimming.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.Hilton Worldwide Holdings (HLT): The large (top three) ~15% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at ~$121. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. There was minor trimming in the last three quarters.Note 1: Their overall cost-basis is ~$72 per share.Note 2: In Q4 2018, Hilton Worldwide Holdings came back in to 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).Restaurant Brands International (QSR): The QSR stake is a large (top three) ~15% 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. Last June, they increased the position by roughly two-thirds thru forward contracts: $397.50M aggregate purchase price for a $44.20 per share cost-basis. The stock currently trades at ~$69. There was minor trimming over the last two quarters.Chipotle Mexican Grill (CMG): CMG is a large 14.75% 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. The stock currently trades at ~$1342. There was a ~7% trimming this quarter at ~$1340 per share.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 ~$132 and the stake is at ~14% of the portfolio. Last three 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.Kept Steady:None.Fannie Mae (FNMA) and Freddie Mac (FMCC) are other long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not , 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 ~$2 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts 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 Q1 2021:Source: John Vincent. Data constructed from Pershing Square’s 13F filings for Q4 2020 and Q1 2021.12/2/2020 – Pershing Square  to FTSE 100.11/27/2020 Interview – comments on FNMA/FMCC: Bill Ackman – 11/27/2020 interview - They buy up conforming (meets certain standards and are mortgages of middle-class people) mortgages from banks, chops them into little pieces in effect by issuing securities backed by them. They guarantee those securities. So, they are an insurer of very-very low risk assets. So, it is how the US housing finance system works – we have a 30-year fixed rate mortgage because Fannie/Freddie beginning in the 1930s were in that business. They blew up during the financial crisis because they were inadequately capitalized, and they started handling subprime and other securities. It wasn’t adequate oversight. The government ended up taking them over, putting them into conservatorship, and injected a large amount of capital – people believed Fannie/Freddie would never be able to pay back the government, and they were in effect insolvent. The reality is they recovered very quickly from financial crisis and they repaid the government including the 10% interest and more over time. But, for political reasons, Obama administration stepped in and said the following, in effect: even though you paid us back, we are going to consider the obligation not paid back at all. The stock languished in the low-$2 level. President Trump & secretary Mnuchin said it is not a tenable situation. They need to be recapitalized. They need to go back to the public markets. They began a series of steps early in the Trump administration. Almost all the steps are taken. The most recent was the issuance of the capital rule which said these entities have to hold ~$280B of capital compared to ~$30B today. On December 9th, Supreme Court is hearing a case whether the government expropriation of these companies were legal. We have some interesting data on what the Supreme Court feels about it. It is a more conservative court now because of Barret confirmation. Conservative courts don’t like expropriation of private companies. So, there is a big opportunity there. And then, it is the last two months of the Trump Administration. Mnuchin, we think will want to finish the job. If either of those two outcomes happen in a favorable way, this could be a $10 stock in short order. Even with Biden, if neither of those two things happen (Supreme Court does not rule in favor and Mnuchin is too distracted with other things and so Trump White House doesn’t do anything), we still think the next administration would continue on the path of bringing these companies back to the public market. So, it overall an interesting special situation with a very attractive risk-reward trading slightly above our cost seven years ago. It is an investment that has not panned out yet and as I say, we are super long-term. But, this is the only thing in the portfolio that could be up 4-5-6x in 12 months. So, that is the more exciting part of the portfolio. Seven years ago, we bought into Fannie/Freddie.11/28/2020: A reader asked why PSH is not US listed. My reply follows: Ackman's first letter to shareholders after IPO in 2014 had the following regarding this: "Furthermore, PSH has a favorable tax structure when compared with many other investment holding or operating companies because, as a Guernsey company, it is not exposed to entity-level taxation. This is a big advantage in a world in which every purchase and sale of an investment by a U.S. corporation would require a 35% tax on profits." Please seeRegulatory filings thru 2/28/2021: 13G 2/12 – PSTH – 200M shares – 50% of business – (includes forward purchase agreements), 13D/A – 1/11 – HHC - 13.47M shares – 24.5% of business (includes puts that were put to them), Form 4 – 1/8  – Activities around the Put options, Form 4 – 1/8 – CMG - ~75K shares disposed @ ~1340.2/18/2021 – Annual Investor Presentation: $13.56B AUM. Performance: PSHZF returned ~85% for 2020 and the NAV performance was ~70% as the discount to NAV narrowed from 28.9% to 23% as of mid-February. Outsized 36.6% performance contribution ($2.6B profit in less than 3 weeks) from the Index CDS hedging trade. PSTH also contributed 13.1% to the performance this year. 16.9% since inception compared to 9.6% for S&P 500 index. Dividend: 10c quarterly dividend. Buybacks: $286M – 6.6% of public shares retired and that resulted in a 2.4% contribution to 2020 returns. Commentary: Added to FTSE 100. LOW – sees $13 to $15 earnings in a few years, CMG – sees them emerging even stronger post-COVID, Agilent – Sees organic growth of 5% to 7% and margin expansion, HLT – in early stages of a multi-year recovery, QSR – as sales trends improve, should accurately reflect business fundamentals, HHC – on a path to strong recovery in 2021 – strong liquidity as they refinanced near-term debt. SBUX – increased long-term outlook for revenue, margins, and earnings growth. Fannie/Freddie – view it as a valuable perpetual options on their eventual exit from conservatorship. Oral arguments Dec 9th with decision June 2021 – lawfulness of the net worth sweep and the legality of FHFA’s structure."