It’s not uncommon to find major S&P 500 stocks that have grown by more than 200% over the past five years. For instance, big names like Apple, Microsoft, and Tesla all fit into this category. However, only one FTSE 100 share has managed to achieve such spectacular growth.
I’m talking about Pershing Square Holdings (LSE:PSH), a closed-end investment fund run by the legendary activist investor Bill Ackman.
Let’s take a closer look at the reasons why the trust has significantly outperformed the FTSE 100 index and whether investors should consider this stock for their portfolios today.
North American investments
Many British investors will be disappointed by the relative underperformance of UK stocks against US shares in recent years. For those keen to gain exposure to stock market opportunities across the Atlantic, Pershing Square could be an attractive proposition.
The fund typically concentrates its holdings in around 8 to 12 large-cap North American companies that have the potential to generate long-term shareholder value.
Currently, its largest position is tech giant Alphabet — Google’s parent company — which accounts for around 17% of the portfolio. This is a relatively recent bet by Ackman. Pershing Square has owned its stake for less than a year.
With a price-to-earnings (P/E) ratio below 27 and significant long-term opportunities from AI, the stock looks cheaper than other ‘Magnificent Seven’ shares at present. I can see why it’s the only one the trust owns.
Other major positions include fast food giants Chipotle Mexican Grill and Restaurant Brands International, as well as luxury hotel and resorts group Hilton Worldwide Holdings.
Will the winning streak continue?
Although the five-year growth record is undoubtedly impressive, returns haven’t been linear. From the start of 2021 to near the end of 2023, the Pershing Square share price essentially traded sideways.
Accordingly, this trust is best-suited for investors with a long-term approach who can stomach years of underperformance.
In addition, it’s worth noting that the fund isn’t as diversified as a broad index like the FTSE 100. While concentration in just a few companies can boost overall returns, it also adds significant volatility risk to an investor’s portfolio.
Indeed, Ackman’s ill-fated foray into Netflix stock back in 2022 saw Pershing Square make a $400m loss on its investment. Even the best make mistakes.
Nonetheless, Pershing Square shares currently trade at a whopping 27% discount to the net asset value of the trust’s portfolio. That kind of gap shouldn’t be ignored lightly.
Plus, Ackman’s stock picking judgment, while not flawless, has been vindicated countless times. With a strong track record of market-crushing returns, it’s little wonder the hedge fund manager has accumulated a $4.2bn net worth as of today.
A stock to consider?
Investing in Pershing Square isn’t a risk-free endeavour. However, I’m a fan of Ackman’s investment philosophy. I also see value in the trust today despite astronomic gains in recent years. There’s a good chance the fund could continue to outpace the FTSE 100 index.
I already own shares in growth-oriented fund Scottish Mortgage Investment Trust and Warren Buffett’s Berkshire Hathaway. However, if I had spare cash, my next move would be to enter a position in Pershing Square. Overall, I believe it deserves serious consideration from investors.
