Bill Ackman‘s Pershing Square returned 2.1% during the first quarter, slightly outperforming the market’s 0.9% return, as well as some of the other funds we track at Insider Monkey which were hit particularly hard landing, including Kyle Bass’ Hayman Advisors which lost 18.9%. The returns are based on the holdings of these funds at the beginning of the quarter, in companies with a market cap exceeding $1 billion. This translated into 7 holdings for Pershing Square and 5 for Hayman.
Ackman founded his long-short value hedge fund Pershing Square in 2004 after the liquidation of his prior shop, Gotham Partners. The firm started with an initial capital of $54 million and today the market value of the fund’s portfolio is $16.04 billion. The fund operates on a mixture of value investing and an activist approach, both of which are backed by fundamental analysis of companies based on extensive research. One can have an idea of Ackman’s financial foresight by the relentless warnings that he had given the financial community prior to the 2008 crisis regarding flaws in the mortgage system. A few might have even ridiculed him then, but no one is laughing now. The episode is chronicled in the book ‘Confidence Game’ by Christine Richard. His top picks at the end of 2014 included Air Products & Chemicals, Inc. (NYSE:APD), Canadian Pacific Railway Limited (USA) (NYSE:CP), Zoetis Inc (NYSE:ZTS) and Restaurant Brands International Inc (NYSE:QSR), with those holdings representing over 54% of his fund’s portfolio value.
The average investor doesn’t have enough time to do in-depth analysis on each stock they include in their portfolios. Professional investors, like Bill Ackman, spend weeks conducting due diligence on each company and spend millions obtaining information and paying the salaries of Ivy League educated analysts, which makes them the perfect investors to emulate. However, we also know that hedge funds’ returns have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of hedge funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012. The exceptional results of this strategy got even better in forward testing since the strategy went live at the end of August 2012. The 15 most popular small-cap stock picks among the hedge funds we track in our database have beaten the market by more than 82 percentage points since then (see the details here).
Air Products & Chemicals, Inc. (NYSE:APD) is one of Ackman’s activist ventures as he is helping the company through a restructuring phase. His efforts paid off further during the past quarter, as the company posted returns of 5.44%. His holding in the company, comprised of 20.55 million shares and valued at $2.96 billion represented 18.47% of his fund’s portfolio value. Among over 700 hedge funds that we track, 82 had invested a total of $8.92 billion in the company at the end of the year compared to 71 funds with $7.87 billion invested a quarter earlier. Daniel S. Och’s Oz Management held some 5.46 million shares valued at $788 million at the end of the fourth quarter. Air Products & Chemicals, Inc. (NYSE:APD) recently increased its dividend by 5%, which marked an increase for the 33rd consecutive year. The industrial gases company is also one of the hedge funds’ favorite Dividend Aristocrats.
Pershing Square held about 13.94 million shares of Canadian Pacific Railway Limited (USA) (NYSE:CP) valued at $2.69 billion. Ackman’s activist move in Canadian Pacific is one of the greatest examples of how much value can be extracted from an under-performing company with a change of management. With the help of his newly appointed CEO Hunter Harrison, Ackman transformed a $7.1 billion company in 2011 into the $30.08 billion railway giant that it is today. However, Canadian Pacific Railway Limited (USA) (NYSE:CP)’s stock retracted during the first quarter as it lost some 5.03% of its value. Andreas Halvorsen of Viking Global and Daniel S. Och of Oz Management are two other significant investors of the company.
Zoetis Inc (NYSE:ZTS) appreciated by 7.78% during the first quarter, which was also the highest among the top picks in Ackman’s portfolio. In February, the world’s largest animal health group with respect to revenues, added Pershing Square’s Bill Doyle to its board. Pershing Square’s stake amounts to 41.57 million shares valued at $1.78 billion. The $23.2 billion company is a big part of Pershing Square’s holdings in the health care sector, which represent 51% of the fund’s portfolio value. George Soros’ Soros Fund Management holds about 4.1 million shares valued at $176.71 mllion.
Moving on to Ackman’s final top pick, Restaurant Brands International Inc (NYSE:QSR), which was listed on the Exchange in December last year after a merger between Burger King and Canadian coffee shop and restaurant chain Tim Hortons. Pershing Square held some 38 million shares valued at 2.69 billion of the stock, which depreciated by 1.69% during the first quarter. Warren Buffett‘s Berkshire Hathaway also held some 8.44 million shares valued at $329.43 million at the end of 2014.
Disclosure: None
