Pershing Square (PSH) fund manager Bill Ackman has sold most of his position in Alphabet and switched it into a new $2.1bn holding in rival “Magnificent Seven” stock Microsoft.
A US regulatory filing on Friday by his firm Pershing Square Capital Management showed it had bought around 5.65m Microsoft shares in the first quarter. This was funded by the sale of class C shares in Alphabet which had been reduced by 95%.
US media reports say the remaining holding in the Google owner has also been sold in the current quarter.
In posts on X, Ackman said the “tactical reallocation” did not reflect a bearish stance on Alphabet, which was the top 10.3% position in the London-listed PSH investment company at the start of the year.
He said the disposal was to fund the investment in Microsoft which is now a core holding in both the £7bn US-focused PSH and its new $4.1bn New York listed “mirror” fund Pershing Square USA (PSUS).
The hedge fund manager flagged Microsoft’s “highly compelling valuation” and expressed confidence in its position in artificial intelligence (AI) and the resilience of its Azure cloud software business.
Microsoft shares rose 3% to $421.92 on Friday but have fallen nearly 13% this year on concerns about the commercial benefit of its heavy investment in AI.
Pershing Square’s disclosure came on the same day that hedge fund manager Chris Hohn revealed he had undertaken the opposite trade. Hohn slashed an $8bn holding in Microsoft in his TCI Fund to 1% from 10% in the first quarter to lift Alphabet to 5% from 3%, making it its largest technology position.
Alphabet C shares fell 3.9% but remain 25% up on January.
In an investor letter Hohn cited “uncertainty over Microsoft’s competitive position in the future” if AI spawned new rivals to challenge the dominance of its Office product range and eroded the competitive moat around its Cloud division.
Microsoft’s Azure is the world’s second largest cloud infrastructure with a 25% market share, and has been closing the gap with market leader Amazon Web Services on 31%. Third-placed Alphabet with an estimated 14% share is the fastest growing, however, having lifted its position from 12% in December.
Pershing Square first disclosed its investment in Alphabet three years ago having bought 10.3m shares in the first quarter of 2023. This was after its shares suffered following the launch of ChatGPT by Microsoft-backed OpenAI which at the time some feared could challenge the dominance of its Google search business.
Ackman’s technology bets also embraced Amazon and Meta last year, which were also bought during periods of share price weakness.
PSH shares have also been weak, falling over 15% this year as some US holders have switched to PSUS instead. The discount, or gap, between the share price and value of the underlying investments has widened to 34% from a one-year average of 28%, with PSH now underperforming the US S&P 500 index over one, three and five years.
That prompted the company on Friday to announce another $100m programme to buy back more of the undervalued shares, shrinking the capital base of the company but adding to the net asset value (NAV) of shareholders’ stakes. In the past nine years PSH has bought back $1.9bn of shares.
QuotedData senior analyst Matthew Read said, “the proposed repurchases equate to only around 1% of PSH’s NAV at the current share price, so are unlikely to have any meaningful impact on PSH’s discount.”
Ackman last month told journalists he hoped PSUS would enjoy higher investor support from US investors and trade close to its asset value. He believed that in time would help improve PSH’s share price rating. Management fees earned by the manager’s firm on the new fund will also start to reduce the 16% performance fee paid by PSH investors, he said.
PSUS has had a hesitant start in New York after its record $5bn fund raise at the end of April. Following a fall on the first day, which Ackman blamed on sales by retail investors, the shares have continued to trade below their $50 listing price and closed at $41.37 on Friday.
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