Pershing Square (LSE:PSH), is a publicly-listed hedge fund. Its founder Bill Ackman is still very much involved in the firm and is known for some outspoken views in the media. Yet the FTSE 100 stock is up 30% over the past year, even though it only holds 10 growth shares. Here are the details.
Running through the numbers
Ackman is listed as making $610m last year. According to an independent ranking of the best paid hedge fund managers, this put him seventh overall. It’s mind-boggling to think there were people ahead of him on the list. Yet what makes this figure even more impressive is his lack of trading activity during the year.
As the fund is listed on the stock market, it has to be quite transparent in the stocks that it buys and sells. So I can see that over the course of the year, he barely touched the 10 stocks that are owned within the fund.
I can also see that he has an investment team of just eight people. This not only speaks to how active Ackman himself still is, but also that it doesn’t take hundreds of people to manage a fund.
As a risk, it’s true that being smaller means Ackman has more power on what to invest in. He can get it wrong, in a big way. This has happened in the past with companies like Herbalife, so I need to be careful.
Gains from different stocks
The big winnings for Pershing Square came from its holdings in Chipotle Mexican Grill and Alphabet. These two stocks both rose over 50% during 2023. Given the fact that the fund doesn’t hold that many stocks, the sharp rise in these two helped to improve the performance overall.
Yet it wasn’t just these big names doing well. The rest of the portfolio also helped. This included a 44% gain from Hilton Worldwide and a 21% gain from Restaurant Brands.
What I found of interest was the fact that the fund was diversified even though it didn’t own hundreds of stocks. This diversification was achieved by putting money in different sectors. There were allocations to tech, travel, tourism, real-estate, music and more.
This gives me confidence going forward. For example, let’s say we get sharp drop in tech stocks. Even with this, I wouldn’t expect a stock like Chipotle to be impacted or correlated to this. This is a great attribute for any portfolio to have.
My thinking from here
Not all of Ackman’s gains came purely from the stock appreciation. They also came from the fees that he charged investors via Pershing Square, as well as some other related business income from the company.
I do think that investors (myself included) should consider adding Pershing Square to an existing portfolio. It’s clear that Ackman has a long-term mindset focused on key stocks, which is the same mindset any good investor should have.
