Pershing Square: A Reformed Fannie And Freddie Will Be Worth 'A Multiple Of Their Current Price'

Despite wanting to forget 2016 altogether, Pershing Square Capital investors got one last reminder of their brutal year this week when Bill Ackman’s firm sent out its annual shareholder update.

For the second consecutive year, Pershing has significantly underperformed the SPDR S&P 500 ETF Trust SPY. In 2016, Pershing produced a -13.5 percent return, while the S&P 500 generated a +13.5 percent return. In 2015, Pershing produced a -20.5 percent return while the S&P 500 generated a +1.4 percent return.

Yet despite Ackman’s humbling performance, he's certainly not backing down from two of his fund’s most controversial holdings: Federal National Mortgage Assctn Fnni Me FMNA and Federal Home Loan Mortgage Corp FMCC.

According to the update, Ackman is as bullish on Fannie and Freddie as ever.

“Despite significant share price appreciation in 2016, we believe the shares of a reformed Fannie and Freddie will be worth a multiple of their current price,” the report reads.

Ackman feels a reformed Fannie and Freddie is the only “viable” option for the government at this point.

He points to language Treasury Secretary nominee Steve Mnuchin used during his confirmation hearing: “What I’ve said and I believe, we need housing finance reform, so we shouldn’t just leave Fannie and Freddie as is for the next 4 or 8 years under government control, without a fix.”

So far, Ackman’s bet on Fannie and Freddie has been one of the few bright spots for Pershing investors in the past two years. The stocks are up 66 percent and 73 percent, respectively, since Ackman first invested in 2014.