After several years of lackluster returns, Bill Ackman (Trades, Portfolio) is having a blowout 2020. This comes off the back of a fantastic year in 2019 as well.
According to its December update, Ackman's hedge fund, Pershing Square Holdings, gained 4.5% in December, bringing its 2019 net performance to 58.1%.
Ackman's run of good luck has continued into 2020. As of the beginning of this month, Pershing Square was up more than 17%. That's compared to a double-digit decline for the S&P 500 over the same period.
Big payoff
Ackman hit the headlines back in March when it was revealed that he'd made a 100-fold return on a hedging bet.
Pershing Square bought far out of the money protection against investment-grade and high-yield bond indexes, spending about $27 million for this protection. Ackman and his team bet that if volatility exploded, credit spreads would widen dramatically, putting what has been described as their "ultra-convex bets" in the money and generating a huge payoff.
That's just what happened. Ackman reportedly booked a $2.6 billion gain on the trade when volatility spiked in March.
This gave the hedge fund manager a considerable war chest to invest in the market when stock prices for many companies had reached multi-year lows. Ackman used this cash to increase holdings in some of his favorite positions while buying new stakes in others.
Ackman's buys
According to Pershing Square's latest 13F filing, the activist hedge fund manager nearly doubled his position in home improvement retailer Lowe's Cos (LOW, Financial) during the first quarter. The position now accounts for 16% of his portfolio and was worth just over $1 billion at the end of March.
Ackman first invested in Lowe's back in 2018. Writing in his 2018 annual shareholder letter, the activist investor said that he was attracted to the company due to its ambitions to increase profit margins to 12% over the medium-term from 9.2%. The company aims to improve operations to a similar caliber as that of peer Home Depot (HD, Financial), which has margins of nearly 15%.
Ackman also used his windfall to increase Pershing Square's stake in Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial). Commenting on the position in 2019, the hedge fund manager said:
"The catalyst for our current investment in Berkshire is our view that the company is currently trading at one of the widest discounts to its intrinsic value in many years, at a time when we expect the operating performance of its subsidiaries to improve as a result of certain managerial and organizational changes at the company."
As the stock has only continued to fall in 2020, it seems reasonable to speculate that Ackman believes the company is substantially more undervalued today than it was last year.
Ackman also substantially increased his position in Agilent Technologies (A, Financial). The fund increased the holding by nearly 300% to just over 12.6 million shares. It now has a 14% portfolio weight.
He also increased his position in Howard Hughes Corp (HHC, Financial) by 455%. The position is now 12.2 million shares, worth just over $616 million.
Two additions to the portfolio in the quarter were The Blackstone Group (BX, Financial) and Park Hotels & Resorts (PK, Financial). These are currently quite small positions in the portfolio. They make up just 0.4% and 0.8% of the equity portfolio, respectively. It'll be interesting to see if the hedge fund manager continues to acquire shares in these companies over the next few months. He traditionally owns a concentrated portfolio of investments, with an average portfolio weight of 10%.
Disclosure: The author owns shares in Berkshire Hathaway.
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