Investors who bet on Bill Ackman's acumen probably aren't feeling all that enthused right now. Since the Pershing Square founder released his closed-end fund "Pershing Square USA" (PSUS) in April, it hasn't followed the broader market's uptrend. Quite the contrary: The share price for Ackman's fund has only gone down since its $5 billion opening.
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By comparison, the S&P 500 is up nearly 14% year-to-date, while more tech-heavy indices like the NASDAQ-100 are doing even better. But what really has Ackman annoyed is how cheap his fund's shares are relative to their net-asset value (NAV). As a closed-end fund, the price of Pershing Square USA doesn't perfectly mirror the value of the shares Ackman holds like a mutual fund or ETF. Instead, this fund can trade at a discount or premium based on market sentiment. The NAV gives the most accurate estimate of this fund's true value if you purely look at the assets it holds.
As of the time of writing, Pershing Square estimates the NAV per share on PSUS is $50.32. That's roughly 20% higher than where PSUS is actually trading at the current market price. According to The Wall Street Journal, Ackman said this ultra-low rate is "frankly absurd." Moneywise emailed Pershing Square for further comment, but the firm only said, "At this point we're not commenting beyond the published materials and the calls." In Pershing Square's semi-annual report, Ackman identified PSUS's discount to NAV as the "biggest challenge since the IPO," arguing that double-digit divergence is "one of the widest discounts of any U.S. closed-end fund invested in public securities." As for what Ackman sees as the root cause, he mentioned "technical factors from the IPO" and the company's failure to market the fund effectively.
As Ackman put it, "The composition of the portfolio up until this moment has been largely unknown, which has also made it difficult for many closed-end fund investors to buy the stock." However, the underperformance may also stem from Ackman's investment preferences. In a more recent August 12 letter to shareholders, Ackman openly acknowledged that "semiconductors and tech hardware and equipment" have driven the S&P 500's outperformance. Yet you won't find names like Sandisk or Micron in Pershing Square's portfolio as they don't fit Ackman's stated investment style.
Pershing Square's website clearly spells out the companies Ackman is most interested in buying: "Free-cash-flow-generative, North American large capitalization growth companies at attractive valuations." While this fits Ackman's preferences and his belief in creating predictable, long-term value, it also means he's missing outsized gains in more cyclical chipmakers. Barron's also pointed to another factor impacting Pershing Square USA's underperformance: High fees. The annual management fee on PSUS shares is about 2%, which is quite high compared with standard ETFs and mutual funds.
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