One of the world’s most successful hedge fund managers has one of the most concentrated portfolio’s in the business.
Bill Ackman is something of a legend in investing circles. He manages Pershing Square Capital Management, the hedge fund he founded, which has nearly $11 billion in assets under management. The activist investor made his fortune by acquiring sizable positions in companies and pushing management to make positive changes that increase shareholder value.
What sets Ackman apart from his hedge fund colleagues is that Pershing Square owns large stakes in just eight to 12 companies and generally holds them for years. It focuses on high-quality, large-cap, North American companies with limited downside and predictable, recurring cash flows. That strategy has been wildly successful for Ackman, as Pershing Square has generated a 31% annualized return over the past five years, roughly double the performance of the S&P 500.
Let’s look at the eight stocks that made up Pershing Square’s portfolio to close out 2023 and why Ackman chose them.
Image source: Getty Images.
1. Chipotle: 22%
Chipotle Mexican Grill (CMG 2.41%) is by far Pershing’s largest holding, with roughly 825,000 shares worth more than $2.4 billion. Ackman first purchased Chipotle stock back in 2016 after the company experienced a spate of food safety issues which caused the stock to lose half its value.
Ackman cited Chipotle’s “continued focus on exceptional food and operational excellence” for fueling the company’s impressive growth. In 2023, revenue grew 14%, resulting in diluted earnings per share (EPS) that climbed 38%. Ackman highlighted Chipotle’s same-store sales that jumped 8% and margin expansion of 26% as fueling his confidence that Chipotle has a “long runway for robust growth.”
On a side note, Chipotle recently announced a 50-for-1 stock split, the first in the company’s 30-year history.
2. Hilton: 17%
Pershing holds a long-standing position in Hilton Worldwide Holdings (HLT -0.89%), totaling 9 million shares worth nearly $1.9 billion. Ackman invested in the hotel operator in late 2018, significantly boosting his stake at the height of the pandemic, betting travel would eventually rebound. That bet has paid off big time.
Ackman called Hilton a “high-quality business… led by an exceptional management team.” In 2023 Hilton’s revenue grew 17%, while adjusted EPS jumped 27%. Ackman cited the company’s profit, noting it was 59% above pre-COVID levels, partially driven by average daily revenue per room that is 13% higher than in 2022. Ackman is also impressed by the company’s market share increases.
3. Restaurant Brands: 16%
Astute investors will recognize the trend that’s beginning to appear — a continuing bet on the resilience of the consumer. Pershing Square holds more than 23 million shares of Restaurant Brands International (QSR 1.03%), in a stake worth $1.7 billion. The company owns such iconic brands as Burger King, Popeyes, Firehouse Subs, and Tim Hortons. Ackman first invested in the restauranteur in 2012, before the company even went public, then increased his stake during the pandemic.
Ackman is excited by Restaurant Brands’ “long-term growth potential trading at a discounted valuation.” Global sales climbed 12% in 2023, pushing EPS up 16%. He also likes the company’s focus on the pure franchised royalty model, which offers “decades” of growth ahead.
4. Alphabet (Class C shares): 14%
One of the key developments in 2023 was Ackman’s investment in Alphabet (GOOG 9.96%). Pershing holds 9.4 million Class C shares, with no voting rights, worth a $1.5 billion. Ackman cited “misplaced concerns over the company’s artificial intelligence (AI) positioning,” resulting in an attractive valuation. That bet is already paying off.
Alphabet’s core advertising business improved consistently throughout 2023, as revenue grew 10% while EPS surged 27%. Ackman believes the strength of search and YouTube and the growth of Google Cloud will generate margin expansion, even as Alphabet invests heavily in AI.
Alphabet’s Class C shares have (modestly) outperformed Class A shares over the past five years, which may explain why Ackman owns more of the former. That said, he also owns Class A shares. (See No. 7.)
5. Canadian Pacific Kansas City: 11%
In a page taken directly from Warren Buffett’s (and Bill Gates’) playbook, Ackman is betting on North American railroads. Pershing returned to one of his favorite investments in 2021 and holds 15 million shares of Canadian Pacific Kansas City (CP -0.50%), worth more than $1.2 billion. Ackman is attracted by the “oligopolistic industry with significant barriers to entry.”
In 2023, Canadian Pacific’s revenue grew 42%, though EPS grew just 12%, hampered by labor disruptions and the weak economy. When Canadian Pacific completed its acquisition of Kansas City Southern last year, it created the only railroad with a direct route from Canada to Mexico. Ackman highlights the resulting revenue and cost synergies and its “one-of-a-kind network” and notes that rail is the cheapest, most viable way to transport heavy freight over long distances.
6. Howard Hughes Holdings: 11%
Of special note is Pershing’s stake in Howard Hughes Holdings (HHH 1.05%), holding nearly 19 million shares worth $1.2 billion — a 38% stake in the company. Ackman believes the property and land developer’s ownership of master planned communities (MPCs) will “drive resilient, long-term value creation.” He points to the ongoing shortage of resale housing inventory which is driving strong demand for new homes.
Howard Hughes Holdings delivered record MPC earnings before taxes and record operating asset net operating income. If that sounds confusing, that’s because it’s a complicated business designed to generate returns over years or even decades, so it won’t be for everyone — but Ackman is clearly sold.
7. Alphabet (Class A shares): 6%
Pershing also holds 4.3 million Alphabet (GOOGL 10.22%) Class A shares — with voting rights — worth $693 million. These are a merely a different class of shares for the same company, so the investing thesis here is the same. (See No. 4.)
8. Lowe’s: 3%
Until recently, Pershing Square held about 1.2 million shares of Lowe’s (LOW -0.04%) in a stake valued at $286 million — but no more. By the time the hedge fund’s annual report came out in February, it revealed that Ackman had sold the remaining portion of his position. Pershing had maintained its stake in Lowe’s since 2018, generating $1.8 billion in profit. The results were driven by the transformation of the business, thanks to robust same-store sales growth over five years and operating margin that expanded by 55%.
Ackman revealed that Pershing exited the investment, citing the macroeconomic environment, difficult industry conditions, and increased downside risk.
