Hedge-fund manager Bill Ackman is upbeat on prospects for markets in 2021, with interest rates staying low and infrastructure spending on the cards. But he’s worried about short-term volatility as coronavirus takes its toll on the US population. “We think the next couple of months unfortunately are going to be tragic and very difficult for the globe and for our country [the US] in particular,” he warned his investors earlier this month. So he has revisited a winning strategy from earlier this year, putting on a new trade that will pay out if fears over corporate solvency increase.
In February, Ackman’s Pershing Square hedge fund, accessible via London-listed Pershing Square Holdings (LSE: PSH), bought credit default swaps (a derivative that pays out if a bond defaults) on several bond indices. When markets woke up to the global threat from Covid-19, the cost of insuring against bankruptcies surged, resulting in a huge gain for Pershing – a return of around 10,000% on its initial investment. Indeed, 2020 has been the firm’s best year on a gross basis, says Ackman.
“I hope we lose money on this next hedge,” he told the Financial Times. “What’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.” More broadly however, Ackman believes that the best-run businesses in beaten-down hospitality sectors should do well in the longer run, reports Forbes. His holdings include Mexican food chain Chipotle and Starbucks.
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
-
What is the 25x retirement rule and does it work?The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
When is the self-assessment tax return deadline?If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
-
Are wealthy whisky enthusiasts leaving Britain?Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardensThe best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicatorsOpinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growthGrowth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estatesThe best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocksStocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
