Over the past couple of weeks, volatility in the stock market has really picked up. This was evident last Friday, when the FTSE 100 dropped well over 1.5% in a day. I can also add into the mix the volatility within precious metals, foreign exchange and other asset classes. When I’m looking to pick stocks that can perform well in this environment, I think Pershing Square (LSE:PSH) shares could be my ideal choice. Here’s why.
Choppy markets
There are a few reasons for the recent increase in volatility in the stock market. The main one is concerns about higher inflation and higher interest rates. Investors are trying to prepare for the possibility of rates rising sooner rather than later. This means they have to adjust their portfolios accordingly. For example, would I want to hold a stock that has high levels of debt if the interest repayments are going to get more expensive?
Another reason for the volatility is the continued uncertainty regarding Covid-19. The optimism of a few weeks ago seems to have been tempered somewhat. The rise of the Delta variant and the restrictions that are still in place on international travel are hurting travel and tourism stocks.
Why Pershing Square?
Trying to navigate the choppy seas is difficult for a retail investor like myself. So what about if I was a professional? Pershing Square is a company made up of professional money managers. It’s the UK entity of the American listed hedge fund, run by Bill Ackman. As of May 2021, Pershing Square held 10 stocks in its portfolio.Â
Logically, Pershing Square shares should mirror the price of its underlying investments. The share price is up 34% over one year. This shows to me that the managers at the company know what they are doing, and are doing it well.
During 2020, some key holdings included Starbucks and Chipotle, both of which performed well. Most of the exposure is in the US and Canada, although this isn’t a constraint imposed by the team.
My thinking here is that buying Pershing Square shares allows me to get access to the knowledge and expertise of the professional managers. I wouldn’t invest everything in the company, but I think whatever I do invest should help me going forward if markets stay volatile. Their ability to successfully pick global stocks and outperform is a large plus when it comes to me trying to use my money wisely.
Risk around Pershing Square shares
The risk to investing in this stock is that even professional money managers have bad periods. Bill Ackman reportedly lost $1bn when investing in Herbalife several years ago. This shows that no one is 100% successful at beating the market, and so I could lose money if bad investments happen this year.
On balance though, I am looking to buy Pershing Square shares as I like the exposure to a focused team of professional investors that it gives me, especially during the choppy period we’re going through.