If there’s one hedge fund that has grabbed more headlines than any other this quarter it's Pershing Square, and specifically, its CEO Bill Ackman (Trades, Portfolio). The activist investor has long drawn the spotlight, famously with his so-called billion-dollar short position in Herbalife Ltd. (NYSE:HLF) and, more recently, his troubled long in Valeant Pharmaceuticals International Inc. (NYSE:VRX).
Both positions have lost the company a large sum of money (at least, that is, on paper) across the last few years and continue to do so. You don’t get to $1 billion without some competence, however. The high-profile hits aside, Ackman – and Pershing Square – has a solid portfolio of assets. Here’s a look at a few of the fund’s largest holdings and how they have performed over the last couple of years.
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Air Products & Chemicals
Pershing first picked up a stake in Air Products & Chemicals (NYSE:APD) back at the beginning of 2013, acquiring open market shares in the low $90 range. According to Pershing’s latest filing, Ackman unloaded a portion of his initial holding at a mean price of $135 during the first quarter, and it now accounts for a little over 12% of Pershing’s total U.S. long portfolio.
Air Products & Chemicals is an industrial gases company – the company processes and sells specialty gas products to the industrial market with a focus in North America, Asia and the Middle East. This sector has had a pretty rough time as late with a number of companies falling foul of the clean energy drive (magnified by the ongoing political situation in the U.S.).
Air Products and Chemicals seems to have dodged the negative sentiment, however, and currently trades at a little over $144 – a close to 25% premium on its January lows. Exactly what Ackman intends to do with this holding remains unclear, though his willingness to get involved if things start to turn sour has already been demonstrated through his ousting of the company’s former CEO back in 2014 and the subsequent appointment of now CEO Seifollah Ghasemi.
This willingness stands Air Products and Chemicals in good stead going forward, and with the company’s second-quarter 2016 earnings showing on target gains in both revenues and bottom line (released at the end of April), it looks like a low-risk (and steady dividend-paying) exposure throughout the remainder of 2016 and beyond.
Mondelez International Inc.
Ackman picked up his position in Mondelez International Inc. (NASDAQ:MDLZ) early 2015, with the company being the only new addition to the Pershing portfolio for the year. At the time of his picking up the exposure, Ackman stated that the company’s attractiveness as a potential buyout candidate was the driving force behind his position, and that quality remains today.
The consumer goods giant Kraft Foods Inc. changed its name to Mondelez International (NASDAQ:MDLZ) in 2011 when it spun off Kraft Foods Group Inc., which then merged with H.J. Heinz Holding Corp. to become Kraft Heinz Foods Co. (NASDAQ:KHC). It’s up just short of 30% since the spinoff and a little over 30% since Ackman took his position. For those not familiar with Mondelez, it’s a snack foods company that owns a number of household brands, including Cadbury’s Chocolate, Oreo and Trident. In this portfolio of household brand names lies its attractiveness as a buyout target.
We wouldn’t be surprised if a big name consumer food and retail company (say, PepsiCo Inc. [NYSE:PEP], for example) targeted a Mondelez buyout at some point across the next 24 to 48 months and, in doing so, offered up a premium on the open market price for the company. In this space, it’s not unusual for premiums to come in at 30% to 60% up on open market, and this is likely what Ackman is banking on with the position.
Mondelez accounts for 10.4% of Pershing’s long US portfolio, and interestingly, is one of the company’s Ackman sold a portion of to fund the acquisition of Valeant. Going forward, it also looks like a low risk exposure, but this time with a little more potential upside based on its attractiveness as a buyout candidate.
Canadian Pacific Railway Limited
After Valeant, Pershing’s largest holding (in its long U.S. portfolio) is Canadian Pacific Railway Limited (NYSE:CP). We know Ackman is a fan of portfolio concentration; this has been one of his best-performing holdings across the last half decade. Since late 2011 (when Pershing first took a position in Canadian Pacific Railway) the company is up 138%, having topped out in late 2014 at a close to 300% gain.
The company accounted for 20.89% of Pershing’s long U.S. holdings at last count – end of the first quarter – but filings released after the quarterly report hit the press suggests that this position is now reduced, by somewhere in the region of 40% on its initial volume.
Ackman has openly admitted that his reluctance to unload shares at the above mentioned peak (end 2014, $214 to $220) was a mistake, and chances are he is offloading some of his position at current prices to offset a portion of the paper losses suffered through the Valeant situation.
As a potential allocation, this one is a little more complicated than Mondelez and Air Products. That Ackman is reducing his holding at current prices suggests he believes the recent dip (CP is down 39% on January highs) is more than just a short term correction. This said, however, the company has a solid balance sheet – $441 million cash on hand at the end of March) and favorable estimates for the second quarter of this year.
One to watch, but with a little caution based on Ackman’s bias.
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