Some of the finance world’s most prominent investors ended 2018 with lackluster returns in their flagship funds, including activist stars Bill Ackman (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio).
In a year in which the S&P 500 index lost 4.38%, manager of hedge fund Pershing Square, Bill Ackman (Trades, Portfolio), returned 0.7% to investors, or a 0.7% loss net of fees. A substantial amount of assets has also exited the fund. Pershing Square Holdings ended 2018 with $6.82 billion in assets under management, a decline from $18.29 billion five years ago at the end of 2014.
Ackman had delivered a 36.9% return on clients’ money in 2014, his last gain for three years. He then lost 16.2% in 2015, 9.6% in 2016 and 1.6% in 2017. The 10-year streak including only two down years since the firm’s inception in 2004 has bolstered historical cumulative returns, which stood at 493.6% at the end of 2017, compared to 220.8% in the S&P 500.
Seven out of nine of Ackman’s holdings ended 2018 lower. His biggest loser last year was Howard Hughes Corp. (HHC, Financial), which tumbled 26%.
Ackman believed that the $4.32 billion market cap real estate company fell along with home builder stocks because of “investor concern regarding a potential slowdown as higher interest rates and increasing labor and material costs make homes less affordable,” he said in a third-quarter letter.
Ackman also said his thesis on the company remained intact, as “HHC’s business fundamentals, performance and execution tell a much different story.”
For the third quarter, the company reported revenues of $257.2 million, a $1.6 million decline from the same quarter a year earlier, which it attributed to a change in accounting methods begun in January. Its net income rose to $23.4 million, or 54 cents per diluted share, compared to $10.5 million, or 24 cents per diluted share, a year earlier. The growth was related primarily to improved land sales in its master planned communities.
Nonetheless, Ackman reduced the position by 42% in November, saying it had become “disproportionately large” in the firm’s funds. It represented about 2.64% of the portfolio after the sale.
Ackman’s second worst performer was United Technologies Corp. (UTX), which slid 17% for the year. Shares of the technology provider to the building and aerospace industries fell in the fourth quarter after it announced it would separate into three independent companies.
In a letter, Ackman said he supported the separation of the company, believing it would “accelerate shareholder value realization and will serve as a catalyst for investors.”
At third quarter-end, United Technologies represented 13.28% of Ackman’s long portfolio, after he increased the holding by 9%, making it his fourth-largest position.
For the year, Ackman’s most successful bets were Automatic Data Processing (ADP, Financial), which gained 12%, and Chipotle Mexican Grill (CMG, Financial), advancing 49%.
Daniel Loeb (Trades, Portfolio)
Loeb’s Third Point Offshore fund suffered an 11.1% decline for the year after a 6.2% drop in the market turmoil of December. The firm ascribed the December performance to losses in investments in its consumer, industrials & commodities, and financials.
"Small gains from short equity positions helped partially mitigate losses. Within Credit, investments in Structured Credit and Corporate Credit were detractors. The Other strategy also posted a loss for hte month as a small gain from an Arbitrage investment was negated by Macro and Private investments within the strategy," the firm said.
Overall, it maintains a lead over the S&P 500, with a 14.4% annualized return versus 7.6% for the index.
Loeb’s worst performer for the year was Kadmon Holdings (KDMN, Financial), a $260.21 million market cap biopharmaceutical company. It represented only 0.22% of Loeb’s long portfolio, and the investor has not bought shares since starting the position in the third quarter of 2016 and adding to it in the first quarter of 2017 at less than half the initial average price. GuruFocus estimates his total loss on the bet at 72%.
Home builder Lennar ranked as his second worst losing stock after dropping 38% for the year, despite improved third-quarter results. The company posted a 74% increase in revenues to $5.7 billion. It also had net earnings of $453.2 million, or $1.37 per diluted share, compared to $249.2 million, or $1.04 million per diluted share.
The company’s executive chairman, Stuart Miller, said in a press release that national economic data had “pointed to higher prices and rising interest rates causing slower overall sales…” As a result, Lennar trades at historical low valuations. Its price-earnings ratio of 9.58 is near a 10-year low, and its price book ratio of 0.93 and price-sales ratio of 0.64 are near their respective five-year troughs.
After he trimmed it by 13.83% in the third quarter, Loeb’s stake in Lennar represented 1.69% of the portfolio. GuruFocus estimates his loss since starting the position in the fourth quarter of 2017 around 27%.
The investor’s best bets of the year were Merck & Co. (MRK, Financial), Netflix (NFLX, Financial) and Salesforce (CRM, Financial), which all rose by double digits.
Another of the Loeb and Ackman’s peers, David Einhorn (Trades, Portfolio) of Greenlight Capital, posted the worst year in his history for 2018. Read more about it here.
