At Insider Monkey, we track 450 of the world’s most elite hedge fund managers and our research has shown that over time, their best picks routinely outperform. For more than a decade in our back tests, our strategy beat the market by 18 percentage points a year, and since we’ve started sharing these picks with the public, it has outpaced the S&P 500 by more than 20 percentage points in just six months (learn how to use this strategy yourself).
With this in mind, it’s also crucial to look at each of the funds we track individually, and by using the latest round of fourth quarter 13F data from the SEC, we can determine how the hedgies were preparing for 2013. Let’s take a look at one fund in particular: Pershing Square, managed by Bill Ackman. Here are his “fab five” stock picks, in order of first to fifth, and here’s his entire equity portfolio.
Sitting at No. 1 is Canadian Pacific Railway Limited (USA) (NYSE:CP), clearly a darling for the activist fund manager. Ackman increased his holdings in this railway giant from only 3.22% of his portfolio in 3Q 2011, to 21.01% of his holdings by the end of that year, most likely on the expectation that the Obama Administration would ax the Keystone XL pipeline. Since then, Ackman’s conviction has boomed even more, and the stock now comprises more than one-fourth of his entire equity portfolio.
Generally speaking, railroad players stand the most to gain if the pipeline is shelved, as the oil will have to find alternatives to getting to refineries in the U.S. Unfortunately, most analysts think that Canadian Pacific Railway Limited (USA) (NYSE:CP) is overvalued and the technicals for this stock seem to agree. Still, since Ackman is known to trade almost exclusively on fundamentals, it appears that he is betting on Canadian oil taking the scenic route to the U.S., and it wouldn’t be a bad idea to consider this possibility playing out. Plenty of hedge fund managers were taking new positions last quarter, including Stephen Mandel and Joel Greenblatt; see the full list here.
No. 2 in Ackman’s equity portfolio is The Proctor & Gamble Company (NYSE:PG). Since it’s nearly impossible to get ready for work in the morning without laying your hands on at least one P&G product—everything from soap to razor blades—the company seems almost recession-proof.
Now, notable names Steve Shapiro and Robert Jaffe were a couple of the managers closing out their positions in Proctor & Gamble Company (NYSE:PG) last quarter, as this may be a reaction to concerns that the company has over-extended itself, both in terms of new products and new markets. As a result, operating expenses are up and revenue is down, albeit slightly. The stock seems to have endured, however, and remains a buy among most analysts given its dominance in the consumer-product sector.
A staple in the Pershing equity portfolio comes in third: