Hedge funds are collective investment funds aimed at institutions and wealthy individuals. Many use complex trading algorithms to generate extra gains. Others use financial derivatives and leverage (borrowed money) to boost returns. Some use short-selling (betting on falling share prices) to make money. To buy in to a typical edge fund would require a minimum investment of between £500k and £1m. But I can buy in to a leading US hedge fund for under £27 by buying one particular FTSE 100 share.
This FTSE 100 firm is a hedge fund
The FTSE 100 share is Pershing Square Holdings (LSE: PSH). PSH is an investment trust — a fund that sells its shares, just as other listed companies do. There are 300+ trusts listed in London, but PSH interests me most. This Guernsey-registered investment trust tracks the Pershing Square Capital Management hedge fund. This is run by US billionaire Bill Ackman. In the secretive world of hedge funds, Ackman is renowned for making big, bold bets. Occasionally, they come unstuck, but some of ‘Wild’ Bill’s conviction trades pay out big-time. Last year, he turned $27m into $2.6bn by buying credit-protection derivatives weeks before ‘Meltdown’ March 2020. That generated a near-100-fold return (+9,530%) in one month!
PSH crashed in 2020
Bill Ackman founded his hedge fund in 2003, but PSH didn’t list in London until May 2017. The real drama for shareholders came in 2020, when Covid-19 rocked the world. As with almost all UK shares, PSH had a volatile 2020. The shares closed at 1,454p on 31 December 2019, but then endured a rough ride as Covid-19 swept the globe. On 19 March 2020, they hit a 2020 closing low of 1,134p. Their 2020 intra-day low of 1,122p followed days later, on 23 March. Since then, this FTSE 100 stock has skyrocketed, more than doubling in under 14 months.
This hedge fund has thrashed the FTSE 100
On Friday, PSH shares closed at 2,670p, more than £15 higher than their March 2020 lows. Indeed, they have gained more than 135% since their 2020 closing low. Over a similar period, the FTSE 100 itself has climbed by less than 38%. Thus, PSH has absolutely thrashed the Footsie since the market bottomed out. Here’s how the stock has performed over various timescales:
| 3M | +7.4% |
| 6M | +20.8% |
| 1Y | +63.8% |
| 2Y | +102.0% |
| 3Y | +178.7% |
As you can see, PSH shares have gained in value over all five periods, ranging from three months to three years. However, this stock didn’t really catch my eye until it entered the FTSE 100 index in December 2020. Since then, it’s been on my buy list.
Will I still buy PSH?
Recently, I decided to buy PSH shares inside my personal pension. Unfortunately, I’m still waiting for the pension-transfer admin to be done. Will I still buy this FTSE 100 share when the paperwork eventually goes through? I’m confident that I will, because I see Bill Ackman as one of the best fundamental value investors around. After all, he’s not worth upwards of $3bn for nothing. And I’ve never invested in a hedge fund before, so this will be a first for me. It will also help me to diversify and expand my portfolio, thus reducing my overall risk.
Investing in a listed hedge fund is highly risky, so it’s not for widows and orphans (or any risk-averse investors). Also, I’m expecting PSH stock to be more volatile than the wider FTSE 100 index. But I’m willing to ride this roller-coaster with Wild Bill Ackman at the helm!