Investing With The Gurus – Learning From Bill Ackman’s Q2-2018 Portfolio

Perishing Square Capital Management’s Bill Ackman recently filed the hedge funds’ 13F reports for the quarter ending June 30, 2018. For those investors that wish to invest like the Gurus, studying these reports is a great way to understand what portfolio changes have taken place Q/Q. In the following sections, we’ll do a deep-dive into Perishing’s Q2 portfolio, and highlight some of the significant changes that have taken place since the last 13F filings – for Q1 2018.

The Portfolio

Compared to Q1, the value of Perishing Square’s overall portfolio increased from $4.83B to $5.80B – an expansion of roughly 20%. From a number of holdings perspective, the portfolio grew by one new name – Lowes Companies Inc. (LOW).

Looking at the Significant Highlights table above, there hasn’t been excessive turnover in the portfolio, with 1 new position added, and one increase and one decrease in holdings, while three other holdings have not had any activity.

According to the SEC filings, compared to Q1, Ackman has reduced his Q2 holdings in Automatic Data Processing Inc. (ADP) by over 3.7 million shares, or 46.80%. Avid followers of Guru Ackman will recall the building-up of his ADP position in a lead up to the bitter proxy battle late in 2017 – a fight that the Guru sadly lost!

During Q2, Perishing has also significantly increased the size of its holdings in United Technologies Corp. (UTX) – by 133.52%. Once again, Activist Ackman’s holdings in UTX need to be put in the context of his (along with Guru Daniel Loeb) calls to break-up the company in order to unlock shareholder value.

As illustrated in the table above, other notable changes include a 14.29% reduction in Restaurant Brands (QSR), and a slight (1.33%) increase in holdings of Mondelez International Inc. (MDLZ) to 16.37 million shares.

QSR still accounts for Perishing’s largest (22%) holdings, with CMG a close second (21%). HHC is the smallest weighted holding (5%) in the portfolio, with the only other single-digit weighted holding being PAH.

In terms of sectorial preferences, Ackman still likes Consumer Cyclicals, including names like Restaurant Brands International Inc. (QSR), Chipotle Mexican Grill, Inc. (CMG) and Lowe’s Companies, Inc. (LOW). These account for 56% of the Q2 portfolio. Industrials, represented by UTX and ADP, are the next heavily-represented sector, accounting for 19% of the total portfolio. Consumer Defensive (12% – MDLZ), Basic Materials (8% – PAH) and Real Estate (5% – HHC) round up the sector exposure for the portfolio.

Performance and Takeaway

Noticeably absent from the portfolio are tech names (like AAPL, AMZN or FB). And neither does this Guru seem inclined to invest in the financial sector, with many of his peers favoring names like BAC and JPM. So, that ought to give you some indication about what you should NOT invest in, if you want to mimic Ackman.

Before you read too much into the analysis presented above, please keep in mind that Perishing Square’s assets have seen a nearly 50% plus decline over the past 3-years or so, primarily as a result of the activist hedgie’s failures in Herbalife Nutrition Ltd. (HLF) and Valeant Pharmaceuticals International, Inc. (VRX) – which has since changed its name to Bausch Health Companies Inc. (BHC). The activist investor has also undertaken significant staff downsizing this year in order to streamline the Fund back into profitability.

According to the company’s website, the Fund delivered 2.5% (Net) return to its shareholders as on June 30, 2018, with Year-To-Date (YTD) returns of 7.5%. For the month of July 2018, the Fund has reported Month-To-Date (MTD) returns of 4.0%, and Quarter-To-Date (QTD) and YTD returns of 4.0% and 11% respectively. And even though the bar is set significantly lower (due to the Fund’s 3-year losing streak), Perishing Square has posted an impressive 13.6% return on a year-to-date basis as of the week of Aug 14th 2018.

So, hypothetically speaking, if you would have held all of the portfolio’s names over the past 1-year (note: that’s NOT what Perishing did. For e.g. LOW is a recent addition), you too would have done rather nicely, with an average portfolio return (remember: we aren’t factoring Fund Management fees in this calculation) of 16.5%.

Given that Guru Ackman’s unloading of his ADP stake was grounded in reasons other than poor performance, and seeing how well it (ADP) and CMG are faring, perhaps those two names might be worth a consideration for anyone looking to be inspired by this Guru.

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Also Read: Investing Like the Gurus – Understanding Bill Ackman’s Investment Style

Author does not have investment in stock discussed in this article.

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