Pershing Square, managed by billionaire Bill Ackman, has been mocked quite a bit this year for its short position in Herbalife Ltd. (NYSE:HLF) but the fund did generate positive returns after fees in the first half of 2013. Furthermore, Ackman’s success in activist investments such as Canadian Pacific Railway Limited (USA) (NYSE:CP) makes him well worth following for initial ideas.
We track quarterly 13F filings from hundreds of hedge funds, including Pershing Square, as part of our work researching investment strategies; the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, according to our research (learn more about our small cap strategy) with our own portfolio based in these results beating the market by 33 percentage points in the last 11 months. While Pershing Square generally manages a concentrated portfolio, according to Pershing Square’s most recent 13F and our database here are three trades Ackman was making in the second quarter of 2013 (see a history of the fund's stock picks):
Air Products & Chemicals. One of the recent big activist moves from Pershing Square has been the fund taking a stake in Air Products & Chemicals, Inc. (NYSE:APD); it reportedly owns a 10% stake in the $21 billion market cap industrial gases and chemicals manufacturer. Ackman and his team have suggested that the company is undervalued due to potential operational improvements, rather than proposing a sale or breakup. The stock trades at 21 times trailing earnings, so the market has already priced in some improvement either based on the industry or on expected upgrades to operations; recent reports show little change in operating income after adding back special items. At the end of March, Edgar Wachenheim’s Greenhaven Associates had been the largest shareholder in Air Products & Chemicals, Inc. (NYSE:APD) out of the filers we track, with a position of 3.8 million shares (research more stocks Greenhaven owned).
Selling General Growth. While General Growth Properties Inc (NYSE:GGP) remained one of Ackman’s top picks, he reduced his holdings of the shopping mall and retail property real estate investment trust by about 10%. Earlier this year the company increased its quarterly dividend payment, and now pays a yield of 2.5%; real estate investment trusts pay out a large share of taxable income to shareholders in order to maintain their tax-advantaged status. This yield is in line with that of other retail REITs, but is not particularly high and so General Growth Properties Inc (NYSE:GGP) is really more of a way to play brick-and-mortar retail.