Bill Ackman is having the best year of his career in 2019.
The net asset value (NAV) of Ackman’s closed-end fund, Pershing Square Holdings (OTC: PSHZF), was up 45% in the first half of this year, more than double the S&P 500’s 19.6% return and one of the best performances of any sizable equity-oriented fund.
This follows a tough four years for the fund. From 2015 through 2018, the fund’s NAV fell roughly -30% compared to the S&P’s return of 32%.
In a letter to shareholders from March, Ackman called Pershing Square “an anomaly” since it invests in U.S. stocks but is listed in Europe. Such a structure limits the fund’s ability to “engage with U.S. investors. As a result, a large source of potential demand for PSH stock is largely unaware of the existence of the company.”
The fund is domiciled in the tax haven Guernsey in the Channel Islands, and is traded in Europe on both the Euronext Amsterdam and the London Stock Exchange. However, investors in the U.S. can get in on the fund over the counter under the PSHZF ticker.
In the March letter, Ackman wrote that “we believe that PSH is extremely undervalued, particularly as we are back on track with the core strategy that has generated our long-term success.”
He continued, “we own one of the highest quality collections of businesses that we have owned since the inception of Pershing Square,” in 2004, and added that the firm has returned to its roots “as an investment-centric operation rather than an asset management business with the attendant requirements to continually raise capital.”
This fund has a very concentrated portfolio with just nine positions, and just five stocks account for over 75% of the fund’s assets, which total $5.5 billion.
Ackman’s outperformance this year is thanks in large part to smart stock picking, including Chipotle Mexican Grill (NYSE: CMG), Starbucks (NASDAQ: SBUX), Hilton Hotels (NYSE: HLT), and Restaurant Brands International (NYSE: QSR).
Chipotle is currently up just under 70% year-to-date. Ackman noted in a recent letter to shareholders that there has been “significant progress” at the burrito chain under CEO Brian Niccol, citing strong same-store sales and transaction growth.
At the time of his letter, Ackman wrote that “Despite the 63% year-to-date increase in the share price, we believe that Chipotle is in the early innings of its transformation.”
The activist investor first bought a struggling Chipotle back in 2016 at an average price of $405 per share. The stock has since gained 80% to $730.98 as of Wednesday’s close.
Starbucks and Hilton are up 36% and 40%, respectively. Restaurant Brands is up 35%, buoyed by organic pretax earnings growth at each of its three brands, with Canadian coffee chain Tim Hortons set for substantial sales growth following the launch of its loyalty program.