Bill Ackman: beware of short-term market volatility

published 27 November 2020

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.