Billionaire hedge fund manager Bill Ackman oversees Pershing Square Capital Management (PSHZ.F 2.30%). Currently $14 billion in size, the fund has generated a 28% annualized return over the past five years. That's more than double the S&P 500 over that time.
So, what's his secret? I dove into Pershing Square's stock portfolio, which holds just eight stocks. Breaking down the holdings revealed a simple yet effective strategy -- and no, it's not just buying megacap technology stocks (though Ackman bought one hand over fist in 2023).
Here is what you need to know.
Pershing Square's portfolio
OTC: PSHZ.F
Key Data Points
Two core holdings
Bill Ackman is bullish on the American eater. Pershing Square's portfolio is built on large positions in Chipotle Mexican Grill, a casual Mexican restaurant chain (16.5% of the portfolio), and Restaurant Brands International, which owns Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs (14.7%). These companies make up over 31% of Pershing Square's holdings.
The next tier is closely grouped together
Unlike Warren Buffett, who holds Apple as Berkshire Hathaway's largest stock holding by a wide margin, Ackman takes a more balanced approach with his other holdings. The next four tickers range between 10.6% and 14.6% of Pershing Square's portfolio:
- Hilton Worldwide Holdings (14.6%): A hospitality business with several hotel and resort brands worldwide.
- Lowe's Companies (13.8%): The second-largest home improvement retailer in the U.S.
- Howard Hughes Holdings (12.9%): A diversified real estate developer.
- Canadian Pacific Kansas City Limited (10.6%): A transcontinental railway company operating in the U.S. and Canada.
These investments aren't far behind Chipotle and Restaurant Brands International but are a clear second tier. Ackman stays mainly in the consumer space but branches into additional discretionary spending categories like hotels and home improvement.
Real estate and railroads are among America's oldest industries yet remain integral to the economy today. Having some exposure to both definitely makes sense.
Ackman's latest pick is an AI stock
Pershing Square hasn't been big on technology stocks, but that changed somewhat in Q1 of 2023 when it opened a position in Alphabet. Ackman added both A and C Class shares, two tickers for the same company (Class A shares have voting rights).
He increased the position in both the second and third quarter of last year. Combining the positions in both share classes brings Alphabet's total weighting to roughly 17% of Pershing Square's portfolio, its most significant investment in one company.
Alphabet's advertising business via Google search and YouTube is how it makes most of its profits, but Alphabet is also an AI stock. The company has deep pockets and is developing and deploying generative AI technology throughout its business.
Two Takeaways from Ackman's investment strategy
Takeaway 1: Bet on the consumer
Technology stocks garner a lot of media coverage, but consumers are the driving force of the U.S. economy. Approximately 67% of the economic output in America comes from consumer spending. Ackman has positioned Pershing Square's portfolio accordingly. Four of Pershing Square's eight stocks are consumer-oriented, totaling almost 60% of the portfolio.
Consumer stocks can also benefit many investors because they typically have simple business models. Understanding how the businesses behind your stocks work is essential to investing because it makes spotting opportunities and threats much easier.
Takeaway 2: Be a long-term investor
Some might assume that professional money managers are traders, regularly jumping in and out of stocks, but Ackman isn't. While he has cut bait at times when he believes he's made a mistake, the portfolio broadly underlines a long-term mindset. Here are the dates he first bought each current holding:
Note: Howard Hughes Holdings was created in 2010 when General Growth Properties went bankrupt during the financial crisis.
| Stock | First Purchase |
|---|---|
| Restaurant Brands International | Q4 2014 |
| Chipotle Mexican Grill | Q3 2016 |
| Hilton Worldwide Holdings | Q4 2018 |
| Lowe's Companies | Q2 2018 |
| Canadian Pacific Kansas City Limited | Q4 2021 |
| Alphabet Class A | Q1 2023 |
| Alphabet Class C | Q1 2023 |
Data source: Whale Wisdom.
The stock market is tough to predict in the short term. Politics, news, and the economy easily influence it. But over time, stock prices tend to go up or down depending on how the underlying businesses perform.
Ackman likes to focus on a narrow group of high-conviction stocks, giving them time to let the fundamentals drive investment returns. While investors are generally better off with a more diversified portfolio than you see here, peeking under the hood at Pershing Square is a fascinating exercise.
