Deep within the ‘boring’ FTSE 100 index lurk the shares of a listed hedge fund. This stock can be bought in London for just over £25 a share. The company in question, Pershing Square Holdings (LSE: PSH), is run by a swashbuckling American billionaire. I don’t own this stock at present, but I’d happily buy and hold it today. Here’s why.
A hedge fund hidden in the FTSE 100
Hedge funds are private investment vehicles run for the benefit of their managers and wealthy investors. In return for actively investing, hedge fund managers usually charge 2% a year in fees, plus 20% of profits beyond agreed benchmarks. Hedge fund managers employ a variety of strategies to produce market beating returns. They invest in a wide range of assets, including stocks, bonds, property, credit, commodities, gold, and so on. To boost returns, they may use leverage (investing borrowed money) or aggressively gear up through financial derivatives. But as they are considered high-risk investments, hedge funds are only available to high net worth (HNW) clients. Hence, typical minimum investments into successful hedge funds might be £500k or even £1m. And yet we have a listed hedge fund hiding in plain sight within the UK’s FTSE 100.
With a market value of £5.3bn, Pershing is one of the FTSE 100’s smaller members (#97 out of 101 by market cap). Its modest size might mean that the business is overlooked by Footsie fans who focus on mega-cap investing. But I see Pershing as a most interesting and unusual Footsie share — and one I’m keen to invest in right now.
How PSH has performed
To show you what I mean, here is this FTSE 100 stock’s performance over seven different timescales. These returns are based on PSH’s closing price of 2,515p on Friday:
One day: +0.8% | Five days: -3.3% | One month: -3.1% | Six months: -4.5%
One year: +16.2% | Three years: +116.1% | Five years: +107.2%
As you can see, Pershing has produced attractive returns over one, three, and five years. However, over the past six months, it has fallen back from its 52-week intra-day high of 2,845p, hit on 16 April. Therefore, this FTSE 100 stock today trades at 330p below its peak, a discount of more than a ninth (11.6%) today.
What is Pershing?
Pershing Square Holdings is structured as an investment trust — a fund with London-listed shares. Pershing listed in London in May 2017. Registered in Guernsey, the trust tracks the Pershing Square Capital Management (PSCM) hedge fund run by US billionaire Bill Ackman. As an activist investor, ‘Wild Bill’ makes big, bold bets on public companies. When he wins, PSCM and Pershing usually win big. For example, in one month, he turned $27m into $2.6bn by buying credit-protection derivatives weeks before ‘Meltdown Monday’ (23 March 2020). Wow.
For me, Bill Ackman is one of the best fundamental value investors on either side of the Atlantic. Indeed, his investing skill has delivered him a net worth of $3.1bn. Hence, once my pension paperwork is done, I’m planning to invest a few thousand pounds into this FTSE 100 share. I’m willing to take the risk of investing in a listed hedge fund, but this isn’t for everyone. More risk-averse investors might not fancy enduring the heightened volatility of investing in Pershing. But, on balance, I’m comfortable with entrusting some of my wealth to Wild Bill Ackman.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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