The old adage, ‘When America sneezes, the world catches a cold,’ remains as relevant as ever. Weak US jobs figures have triggered fears that the world’s largest economy could be heading for a recession. Other issues didn’t help and stock markets plunged worldwide, including the FTSE 100.
Yesterday (5 August), the UK’s blue-chip index had its worst day since mid-January. It briefly dipped below the 8,000 mark.
Sell first, ask later
We don’t even know if the US will enter a recession. Economists at Goldman Sachs reckon there’s now a 25% chance of one. Yet the market is forward-looking, so it sells first then asks questions later.
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If I was an economist, I’d take these currency trades and macroeconomic developments very seriously. But I’m a long-term investor who generally follows the philosophy of Terry Smith, the manger of Fundsmith Equity (the UK’s largest fund). That is to “buy good companies, don’t overpay, and do nothing.”
This is what I intend to carry on doing, regardless of macro conditions.
Time to head stateside?
For most of the past 18 months, I’ve mainly focused on high-yield FTSE 100 dividend stocks and a handful of small-caps. I’ve largely left US stocks alone while the S&P 500 and Nasdaq indexes surged skywards.
But every couple of years, we get this type of sharp pullback and that can open up opportunities.
Consequently, I might start turning my attention towards US stocks. I have a handful on my wishlist, including Visa, whose valuation is starting to look interesting.
Buying the dip
In the meantime though, I’ve decided to add to my position in Pershing Square Holdings (LSE: PSH). This FTSE 100 investment trust gives me a way to invest in the hedge fund managed by Bill Ackman.
Pershing Square holds mainly US stocks, including Alphabet and Chipotle Mexican Grill. As these have fallen, so has the trust’s share price. It’s down 15% in the last two weeks and currently sits at 3,561p.
Mind you, the share price is still up by about 143% in five years. This is testament to Ackman’s skilled performance, which saw the fund deliver an incredible five-year annualised return of 31.2% to the end of 2023.
That was about double the return of the S&P 500, including dividends, over that period!
Now, there are risks to bear in mind here. One is the incredibly concentrated portfolio, with just 13 holdings at the end of July. The charges are also high, as is common with these funds. There’s a 1.5% annual management fee and 16% fee on all fund investment gains.
Another risk is Ackman’s hedging trades, which attempt to offset portfolio losses during falling markets. These can drive big returns, such as the $5bn+ made from well-timed moves during the pandemic. But they do also add complexity.
However, the discount to net asset value (NAV) is about 33%. Put simply, this means the share price is £35 but the fund’s assets are worth around £48 per share. I find that very attractive.
With the stock down 18% since June, I think now is a perfect time for me to buy more of it. Hedge funds are traditionally for the rich, not everyday investors. This makes Pershing Square a unique FTSE 100 stock.
