Pershing Square: a deeply undervalued investment trust to buy now
Pershing Square Holdings has a strong record, but trades at a discount of almost 30%. It could be the ideal investment for uncertain market conditions, says Max King.


The ideal investment for uncertain market conditions would be a trust with a great performance record and a strong chance of preserving value in a bear market, yet one whose shares trade at a significant discount to net asset value (NAV). That’s a lot to ask for. Trusts usually have to sacrifice upside to protect the downside and the successful ones trade close to or above net asset value.
Yet Pershing Square Holdings (LSE: PSH), the £5bn fund lead-managed by Bill Ackman, trades on a discount of nearly 30% despite having returned 70% last year. First listed in Amsterdam in 2014, it switched to London last year. Though classified as a hedge fund, the fund hasn’t shorted any investment since 2017. Instead, it runs a highly concentrated portfolio of companies, mostly in the US, and often seeks to influence their management. The top five holdings typically account for over 60% of the portfolio and the top ten for 80%.
Getting the pandemic right
Over half of last year’s return was accounted for by Ackman anticipating long before others that Covid-19 would spread from China around the world and cause deep dislocation in financial markets. PSH bet heavily that the spread between corporate and government bond yields would rise significantly at a time when the downside was limited. At the height of the panic, PSH covered its bets and reinvested in equity positions.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
PSH’s investment portfolio was initially affected by the sell-off but then recovered sharply. Lowe’s, the home improvement store chain, adapted quickly, gained market share and saw significant growth in sales and margins. The shares now trade over 50% above the pre-pandemic high.
Hilton Hotels is only modestly higher, but Chipotle Mexican Grill has more than doubled over the same period (and tripled since its March 2020 lows). PSH sold out of Starbucks in January 2020, reinvested in March 30% lower down, and sold out again earlier this year, the share price having nearly doubled.
Ackman is optimistic about Restaurant Brands, which owns Burger King, but the shares are unchanged since early 2020. Agilent, a scientific instruments company, was little affected by the pandemic and has seen its share price double since early 2020, though PSH recently sold out. Howard Hughes, a property company, is expected to strongly recover in 2021 after a difficult few years.
A big bet on music
Performance this year has been slower but PSH has matched the S&P 500 on average in up months while losing just 1.8% against 3.8% in the index’s down months. Much of the year has been spent on manoeuvring to acquire a significant stake in Universal Music Group (UMG) prior to its flotation but PSH’s strategy was frustrated by a legal challenge to the listed special purpose acquisition company (Spac) it set up last year for this purpose.
Ackman claims that the challenge is spurious, intended by its proponents to frustrate the Spac route to market, but does not have the time to pursue the case through the courts. Instead, funds managed by Ackman, including PSH, bought a 7.1% stake in Universal from its controlling shareholder Vivendi for $2.8bn and have now exercised an option to buy another 2.9% for $1.15bn. PSH’s investment is $2.5bn, as it is limited to investing 25% of gross assets in any business.
Following the acquisition of EMI in 2012, Universal became the world’s largest music company with an estimated market share of 32% in recorded music. The purchase price values Universal at $39bn compared with 2020 revenues of $8.7bn and profits of $1.56bn although a report by Goldman Sachs values it at $53bn.
Streaming is expected to see double-digit growth for the foreseeable future and live performing is recovering strongly. “We believe that UMG has the potential to be one of our most successful investments with a minimal risk of permanent loss,” says Ackman.
This makes PSH’s high discount to NAV puzzling, especially given Ackman’s record of protecting against the downside. In addition, PSH bought back 6.6% of its shares at an average discount of 32% last year and 21% at an average discount of 26% since inception. There can be few more anomalously undervalued trusts in the market.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Who is the richest person in the world?
The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
By Vaishali Varu Published
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
By Ruth Emery Published
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
By Alex Rankine Published
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
By Dr Matthew Partridge Published
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
By Jane Lewis Published
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
By Cris Sholto Heaton Published
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
By Dr Matthew Partridge Published
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
By Dr Matthew Partridge Published
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
By Jane Lewis Published
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
By Tom Bailey Published