Bill Ackman: beware of short-term market volatility

Bill Ackman, founder of the Pershing Square hedge fund, is upbeat on prospects for markets in 2021, but is worried about short-term volatility as coronavirus takes its toll.

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. 

Recommended

Which companies will lose the most from the energy windfall tax?
Energy stocks

Which companies will lose the most from the energy windfall tax?

The government’s new energy windfall tax has muddied the waters for investors and companies alike. Rupert Hargreaves explains how it might affect some…
27 May 2022
The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
Cryptocurrency roundup: another torrid week for crypto
Bitcoin & crypto

Cryptocurrency roundup: another torrid week for crypto

Cryptocurrencies suffered yet another intense week. Saloni Sardana rounds up the week's crypto news.
27 May 2022
Ocado faces a “crunch” year – should you buy or avoid?
Share tips

Ocado faces a “crunch” year – should you buy or avoid?

Ocado was one of the big winners from the pandemic as customers moved online. But now it’s struggling, and losses are growing. So, asks Rupert Hargrea…
27 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?
Investment trusts

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by almost 45% so far this year. Rupert Hargreaves asks if no…
26 May 2022
Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022