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I needed something to cheer me up since the bloodbath in the markets started on Thursday afternoon. Thank you @TI 🙂
Incidentally, and speaking of things like PSH that are back to lower prices now, there’s some stark pure value in Japan. At one point this morning the Nikkei 225 was trading at a level which it first reached in December 1988 – a year before it’s infamous bubble peak. But it’s PE today is just 11, not more than several times that, as was the case almost 36 years ago. And Japanese small, micro and nano caps can be unreally cheap; even compared to their European brethren, and even for highest quality names with local moats and growing earnings.
I bailed on PSH and sold earlier this year after the rally to over £40. Maybe I’ll look at it again, although that means selling something ISA or SIPP wise as I’m fully invested, having used up both sets of allowances already.
I think Bill is spending too long on twitter.
Ackman’s 24 July letter at Appendix A to the PSUS communique the following day: “36 times vs. 7 times for the S&P 500 over 20 years”. But this statement doesn’t (obviously) correspond to the maximum 2,078% investor return on PSLP/PSH since 2004 shown in their official literature. Where’s Bill getting his more recent numbers from? Does it reflect the gains to NAV from 20 March to 24 July this year? It’s a fair difference.
@Delta Hedge — Well that’s the letter that PSUS told investors to ignore… 😉
I can’t look right now but wonder if it’s the pre (performance?) fee return?
Given that PSUS was to charge a 2% management fee and no performance fee, it might be acceptable to show gross returns, or at least returns that only deducted 2%pa?
@JPGR — There’s a few in that boat. See also Elon Musk.
One can’t help noticing that the likes of Jensen Huang, Tim Cook, and Mark Zuckerberg manage to keep themselves occupied without Tweeting…
On the other hand Ackman has always had a public profile and a wider agenda, so to an extent it comes with the territory I guess.
Yes. Must be pre-fees because the peak NAV was around £54/$70, and that not that much more than the 19th March level, when the 20 year official performance figures end.
I’d initially (wrongly) discounted the pre v post fee explanation because it’s bonkers to use pre-fees.
Worse than just apples to oranges. It’s literally saying ‘this is the performance that you could never have benefitted from because you had to pay the fees, so ignore the fees.’
I think I’ll want to see the discount widen from ~30% now towards ~40% before selling any part of my trackers to buy PSH.
It was decent and fairly quick to realise profit last time; but I can see how, over time, even just the 1.5% p.a. fee would drag on PSH investors’ v. PSH underlying share holdings’ returns, and lead to persistent discounts to NAV of, say, 10% to 15%.
This is on a basis that one could reasonably capitalise the 1.25%ish p.a. difference between PSH’s management fee and a tracker fee (of say c. 0.25% p a.) by using a 10x multiple.
The excess of the discount now to that 10% to 15% range is perhaps a combination of the idiosyncratic Ackman centric factors which we discussed in the comments in May 2023 and the risk off carnage currently consuming the markets.
Was a bit surprised to see that the latest Moguls piece returns to a trust that you’ve already covered, but once again it’s excellent analysis and commentary. I don’t follow PSH closely, so it was interesting to read about the latest happenings.
Personally, I found Bill Ackman’s “hell is coming” appearance on TV during the pandemic, coupled with his massive multi-million hedging trade behind the scenes, quite cynical. It made him and his share holders very nice returns, but I’ve struggled to warm to him ever since.
As we’re comment lite, hope it’s OK to put in another.
A thought and a question: should it be more unexpected for a trust/closed end fund to trade at a discount versus trading at a premium (or at par to NAV)?
Maybe the era of IT (in UK) and CEF (in US) premia (2010s in UK) was the outlier, and the current period (beginning in 2022 generally) of discounts is the norm, and not just a (temporary) new norm?
Some back of envelope maths (apologies for approximations): PSH’s performance figure,
net of all fees, since 2012 has been 13.4% p.a., which roughly doubles NAV every 5 years or so.
That suggests that the average NAV over the past decade would be around half of the current NAV level of $18 bn.
There’s been $1.8bn in performance fees alone over the past decade, so that’s equivalent to 20% or so of average NAV in that period, which may suggest that PSH’s NAV would be roughly 20% higher now just without the performance fees.
Then one adds the effects of the 1.5% p.a. management fee, several or more times what an index tracker would charge.
So, even though PSH holds liquid public securities, is it any wonder it has a fat discount in the absence of an active discount control policy (buybacks)?
Perhaps not so much.
Of course, the fact that – somewhat unusually for an IT – PSH is all in liquid public large cap shares and not unlisted equities, alternative assets, trading strategies or small, micro and nano cap shares means (all things being equal here) that it’s discount might be less than for your more typical active IT.
But all things are not equal here as PSH’s fee footprint is bigger (including the performance fee) than all but the most specialist or niche ITs.
All considered, maybe it isn’t so surprising either that the PSH discount is in the 20% to 40% range, or that the discount grew from from less than 20% before the global interest rate hikes.
The latter might be explained by the increased opportunity cost now of paying the PSH fees as compared to putting those monies spent on fees into US Treasuries instead.
Just a thought.
@Mirror Man — Cheers for giving it a read despite your misgivings. Re: revisiting PSH I guess you wouldn’t have liked one my initial ideas for Moguls (currently kicked into the long grass) which was going to be to follow one company very closely over the year, as a sort of case study of following a company’s official investor releases and business developments (as best could be gleaned from outside) 😉
@Delta Hedge — As we’ve discussed before, one can always find reasons to explain away a discount. Sometimes they persist indefinitely (e.g. Hansa Trust or Caledonia) but it’s usually in my anecdotal experience (i.e. I haven’t data to hand) where there’s some kind of structural reason. For instance, in the case of some of those family trusts they can’t go above a certain level of ownership w/o triggering takeover issues, and equally everyone knows they can block activist attempts to takeover/liquidate.
PSH might run into similar issues — if it hasn’t already — given the otherwise admirable rate of share repurchases, which will have the effect of pushing up Ackman’s relative share of the company. Something to think about I guess. 🙂
@TI: I’d forgotten about those share repurchases. That’s a good sign for the discount.
Arguable managers of a trust on a meaningful discount to its real NAV (i.e. what the assets would actually sell for in the open market on a given day, allowing for liquidity) have a duty (fiduciary or moral) to try and close the discount by selling some of the assets to buyback and cancel the trust’s shares.
Of course, not all trust managers see it that way.
Each discount tells it’s own story, unique to the trust and the time.
But perhaps there’s a taxonomy of sorts at the highest level of generality – you’ve got discounts driven by uncertainty around the quality and worth of the assets and then also discounts which are caused by investor assessment of the impact of costs on future returns.
These two top level categories are not mutually exclusive.
Most UK run and listed ITs on discounts presently have some sort of worry about what the assets would actually fetch on sale because, unlike PSH, they’re not exchange traded day in and day out transparently and in real time.
So investors have to ask themselves collectively, ‘is the NAV real?’
From the outside, this question is hard to answer.
In extremis, you get situations like SOHO and INOV.
SOHO’s discount is currently 54% to its estimated NAV, while the average discount in the UK property sector was 33%, despite SOHO’s rental income being indirectly backed by the government.
Clearly investors don’t ‘buy’ the NAV.
But the real issue is not lack of credence per se in the NAV but investors not being able to know from the outside what the NAV should be. For some assets (unlisted) perhaps noone can tell.
It’s a little like Russian roulette, but where you don’t know in advance how many rounds are actually in the revolver. It could be anything from 0 (the trust is certain to be OK) to 6 (the trust is certain to crash and burn), or any whole number in-between.
The only sane thing then is to assume the worst, even though most investors (on a weighted basis) probably think that the discounting is a bit overdone now.
And then there’s the other psycholoical aspect to this.
As the discount grows wider, investors start to fret about what other investors may know but they don’t.
They think the price is sending a message: it isn’t clear what that message is, but the worry they have is that it is signalling a warning, and not an opportunity.
In contrast, PSH might be straightforward (relatively speaking).
Its assets are basically just liquid large cap shares which are constantly being traded in volume on highly regulated and reputable exchanges.
So you just look at the historic impact of the fee footprint and then project forward applying some choice of discount factor.
I also think that there may be an element here of seeing that 30% of PSH is in UMG exposure and investors then saying, ‘well why don’t I just buy UMG myself, if it’s so great, and so avoid the 1.5% and 16% PSH fees?’
The answer to that has to be that you can get UMG at an economic discount by buying exposure to it through PSH.
So PSH has to be (and to remain) at a discount, as it has in fact been since it launched as available to retail.
And as the fee impact has risen over time, so arguably has the discount.
Of course this is a massively simplified view of cause and effect, and undoubtedly leaves out much more than it might explain, but still….
A little extra titbit/update — it seems probable that the 13th holding in the leisure and hospitality sector I mentioned was Seaport, spun-off from portfolio holding Howard Hughes as I was finishing up my article:
https://investor.howardhughes.com/news-releases/news-release-details/howard-hughes-holdings-announces-completion-spinoff-seaport
In theory this is a neutral move (PSH was previously exposed to HHH with Seaport, now HHH-ex-Seaport plus separately listed Seaport) for now.
Edit: Oops, correct link above now. 🙂
p.s. Following on that mystery holding / Seaport, shame Ackman doesn’t read Moguls…my mooted suggestion Starbucks is up 14% in the pre-market while PSH portfolio holding Chipotle is down about 8% as I type, with the CEO of the latter jumping to try to fix the former!
You should have launched that fund you talked about @TI 😉 Reckon you’d be quite comfortably outpacing Mr Ackman’s performance (and that of his overpaid fund manager brethren) by now. And I’d have invested into a closed end vehicle at a fee of say 0.75% p.a. to start. Having substantially uncorrelated/ negatively correlated styles (including outright opportunistic investing) can beat and hedge out more consensus and systematic approaches. You could even have been the next Anthony Bolton from Fidelity Special Situations. Jumping around onto different types of opportunities did wonders for that fund from 1979 to 2007.
Just off the wires:
“Shares of Nike Inc (NYSE:NKE). 5.1% gained in afterhours trading Wednesday after Pershing Square (NYSE:SQ) Capital Management LP, the hedge fund led by billionaire investor Bill Ackman, disclosed a new position in the sportswear giant.
The stake, comprising approximately 3 million shares, was valued at around $229 million at the end of the second quarter.
The disclosure was made through a 13F filing, a quarterly report filed by institutional investment managers to the U.S. Securities and Exchange Commission that provides insights into their equity holdings.
The acquisition of shares by Pershing Square adds to its portfolio of investments, which also saw the addition of new stakes in investment management company Brookfield during the same period.
The announcement of these new positions has drawn attention to the investment strategies of Ackman, who is known for his high-profile bets in the market”
Lots of babble in today’s FT about Bill trying to relaunch Pershing Square USA. Long story short: seems foundation investors want warrants to buy further into the fund in future at the launch price and/or first refusal on buying into any float of the investment management company behind both PSH in Europe and the proposed US fund. Bill might give them the first but not the second.
@Delta Hedge — Thanks for the heads-up, which I’d missed. (Link below for those with an FT subscription).
I think this will help, at least at the margin. As I wrote in the article above:
So this sort of thing will give institutional capital allocators one less reason to pass on PUSA, although not necessarily any more reason to buy it.
https://www.ft.com/content/36206d82-a91d-43ba-9358-54c01c8d0315
As ownership of PSH shares confers no right to receive any of the management or performance fees of any Pershing Square entity, if investors wanted exposure to a management fee income stream then they might be interested instead in the Lindsell Train Investment Trust, or LTI, which has a ~24% stake in the fund management company Lindsell Train Limited (which comprises ~30% of LTI’s holdings).
OTOH, PSH still sits on a ~27% discount compared to ‘just’ 18% for LTI, doubtlessly partly accounted for by LTI’s OCF (at 0.96% p.a.) being significantly less than its equivalent figure for PSH.
@Delta Hedge — Well and also to take into account that whereas PSH has delivered stellar returns in recent years, LTI – and LT funds generally – have been dogs since Covid. (And I say that as an admirer of Nick Train and an on/off holder of LTI, presently set to ‘on’ 😉 ).
Afternoon all – glad not to be doing the Ticketmaster dance to Oasis today.
PSH and LTI – oof, there’s a combo. I hold both, and am currently extremely frustrated with both. Will anyone here be at the latter’s forthcoming AGM?
PSH – I still increasingly feel like Ackman is incredibly cyclical, and we’re getting to that Valeant/Herbalife part of the cycle. The Twitter/Trump/Musk madness, the PSUS delusions – it’s a worry. OTOH we’ve had UMG collapse, CMG down, so maybe the worst is over. Or are there more cockroaches in the kitchen?
Of the new holdings, Nike seems fairly Ackman-esque (though I didn’t think it was all that at the moment) while Brookfield is more of a head-scratcher. I know Bruce Flatt has his fans, but there are others who see it as an opaque black box of a company with potential valuation approximations. I am guessing that Ackman sees it as another ‘Royalties’ busienss.
Anyway here’s hoping things calm down, the discount comes in again, and we continue to make money.
LTI – as you say – it’s been a dog, and I am still, frankly, gobsmacked, just because it (& Train) have been so impressive for so long before that. And I think one just has to try & work out if that’s it for the firm (in which case a 30% stake in LTL is not very desirable) or if they are due a reversion.
I appreciate Train acknowledging the consumer stuff hasn’t been working & they are increasing their Data/Tech stuff. I do find it strange that this has taken so long, given that in the early days of LT, Train ran a Tech/Media fund – I’d have thought he’d have navigated the Tech-friendly world better.
Instead, Fevertree has been a stinker – seems like a good story but overvalued. And a mockery given there are so many quality US companies they turned down on valuation grounds. UMG, a bad start, though good for accumulating more shares. Burberry… ouch, I suspect LVMH or even Hermes would have done them better. I appreciate that he mainly has a UK remit. And I appreciate that many people have been wrong-footed by how extreme the collapse of the beverages sector has been. And hats off to James Bulloch (if it was he) for FICO, which was a genius pick, even if it has got rather out of control now.
Anyway, at least this is arguably priced in the discount, the dividend is great & maintained (for now) and a number of the holdings are arguably growth at value prices now. So fingers crossed. I just hope that L & T aren’t just ticking along to retirement without the hunger they once had – I don’t doubt their fiduciary duty, but hope they continue to tweak things & improve things.
Apologies for the long post.
@Tom Grlla: got a lovely invite to the AGM from LTI, typed on proper writing paper and all 🙂 Pleasantly surprised as my tiny (0.5% of portfolio) LTI holding is via a platform, not direct, and I’ve never before received any invites to any other AGMs, despite holding a fair few small stakes in UK ITs over the years (again, all via a fund platform). Unfortunately, as the AGM was in London (IIRC), and I’m in the North, not really practical to go along, but had it been local then I’d have probably taken the day off of work to see in person what Mr Train had to say.
I rate Train (and Terry Smith) and will stick with LTI, just like I am for CGT and Peter Spiller. Then again, the CGT stake is only about 1% or so, and so, as with Train, it’s easy to hang fire on action when little is at stake.
I’ve less faith in Ackman, for the reasons you cite, and sold out of PSH at a reasonable profit quickly realised on the pop to over £40. At the moment I’m not feeling a need to go back in. At a 38% discount it was attractive for the liquid listed underlying holdings, but less so at 27%.
@delta hedge – yes, it was charming, wasn’t it! Ditto, never had on before being on a platform.
CGT, yes, yet another one where one of the greats has struggled for a few years. In this situation, I wonder if the huge increase in AUM hasn’t helped, though they deny this. Perhaps the younger generation aren’t able to match up to Spiller – Succession is hard. Or perhaps their defensive style is just out of fashion, and one can never predict when/if this will change.
@Tom Grlla: good piece a couple of weeks ago on Nick Train by Maynard Patton via ShareScope here:
https://knowledge.sharescope.co.uk/2024/08/16/small-cap-spotlight-report-lindsell-train-investment-trust/
@Delta Hedge – many thanks for this. Nice to see a counterpoint to my rather down feelings on this.
I think the recent bids on Hargreaves and RightMove are another concern – these are the two classic, modern Lindsell Train stocks for me (Fevertree may be one day, but too early & was too expensive). Losing ‘newer’ companies like these makes it even harder for Train to operate a UK mandate, in my opinion.
Separately I fear Burberry is the new Pearson – I just can’t see it turning around & would almost take a bet that LVMH & Hermes will do better over 5-10 years, even at their more elevated valuation. I would love it if he would cut it out, but it’s not his style. He is clearly much smarter than me, but that doesn’t mean he’s ALWAYS right.
More on Ackman’s ‘reboot’ (about a third of the way down this substack post):
https://open.substack.com/pub/marketlab/p/bill-ackmans-reboot
@Tom Grlla @Delta Hedge — I’ve made repeated forays into Train vehicles over the past couple of years (LTI and FGT), sometimes trading a bump but more often losing a bit and then (thankfully) cutting bait.
I think it’s only fair to note that almost everything Train invests in is out of favour, rightly or wrong. We might dub it ‘feel the quality’ stocks, whether it be the product (Johnnie Walker) or the stock (Diageo).
Just look for example at the share prices of Remy and Pernod Ricard. Even the mighty Hermes has recently come under pressure.
Perhaps we could say that Train should have anticipated this before rates begun to rise — hitting both quality valuations and ‘affordable luxury’ type spending — but that would hardly be investing in Train. He’s stuck to what he said he would; totally changing tack would have been a bigger crime IMHO. You know what you’re getting here, which is vital with an active manager, and can buy or sell the shares accordingly.
(Albeit personally I could have done with fewer “our stocks aren’t bond proxies and the market should pay 40x times earnings for them” articles/commentary, when even I, a humble blogger who doesn’t own a fund management company worth tens of millions, could see to some extent they were bond proxies and the market wasn’t going to pay 40x for them at some point in the future 😉 )
I currently own both LTI and FGT again, though the latter is on a short leash, but definitely don’t take that (as ever) as any sort of comfort / recommendation! They are liable to be adjusted at any time.
Perhaps I’ll write up the case of Nick Train for Moguls next month, sounds like there could be some interest? 🙂
P.S. re: “Another Pearson”, well yes, but have you seen how well the share shave done since he did finally dump them? I expect he’s learned a different lesson from that experience — don’t sell, *really* — and perhaps rightly so for his style of investing… 😉
Some years back a PF blogger (can’t now remember who) suggested creating a DIY ‘Lindsell – Smith’ fund comprising either a). all the holdings common to both Lindsell-Train’s funds and Fundsmiths’ main global equity fund or b). (and more expansively) holdings found in either. In practice, because only the top ten holdings per fund are published (with a lag) and not all can be brought by retail investors (an issue in particular for the Fundsmith holdings), at most you’d be looking at 15 or so companies. Terry Smith and Lindsell-Train approach ‘Quality’ from distinct and in each case vigorously applied stand points, and they don’t compromise on process – which isn’t to say either or both are ‘right’ of course. Whilst there have been some allegations of ‘style drift’ for Terry Smith this more, I think, just reflects that the companies answering the same (ROIC and FCF yield) criteria have changed since Fundsmith launched back in (IIRC) 2010. Maybe an interesting idea.
@TI – I was thinking a Nick Train feature would be useful, as I appreciate it has become rather off-topic here – my apologies.
I take your points – and it is currently a perfect storm for the portfolio, which I can’t believe will last – they are mostly extremely good companies.
I respectfully differ on views on Pearson and Burberry – the former may have improved but is still at a level it was at in 2010, whereas I think that a YTD of -60% (OK, part of that is the index demotion) is more what you’d expect from some crazy SMT holding, not a more ‘boring’ quality portfolio. That said, I think even the best investors should be expected to have big misses like this occasionally.
Incidentally, at the LTI AGM, Train said that he had a few prospective things that could go in the portfolio which I thought was encouraging (someone asked what would happen if/when HL and RMV go).
Cheers to all for the discussion.
@Tom Grlla — Re: Pearson, well without checking the price I believe it at one point was close to a double/100% *after* he sold.
If we are saying should he have sold many years sooner then I’d agree. But the further you go back, the more we risk hindsight colouring our view — a benefit NT didn’t have *then*.
(Of course you might say you’re paying him for making better calls, and I don’t disagree. It wasn’t a good position. IIRC didn’t it come from a spin-off? Possibly I’m misremembering.)