Friday marked a tough end to the week for the stock market. The FTSE 100 fell by 2%, closing just above 7,000 points. Even though the index fell sharply, there were a few stocks that managed to post positive share price gains for the day. One of these was Pershing Square Holdings (LSE:PSH). It rose 1.64% on Friday and is up 1.45% over the past year. So should I buy this FTSE 100 stock that’s bucking the trend?
Understanding the share price movements
The main reason for the FTSE 100 fall last week was the mini-budget from the Chancellor. Even though I feel the cuts in taxation and stamp duty are positive for some stocks in the medium term, other UK assets suffered. For example, the British pound was battered, falling to the lowest level since 1985 against the US dollar. With bond markets also having a terrible week, this negative sentiment pulled the stock market down with it.
Despite this, Pershing Square shares pushed higher. It’s actually a fund that has the ability to buy and sell a range of stocks, along with more complicated financial instruments. According to the half-year report, it recorded a 9.9% gain from interest rate swaptions. These derivatives essentially allow the fund managers to take a view on future interest rates. Clearly, they’ve called the move correctly!
The fund has almost half of the invested money in US stocks. Even though the US markets were down last week as well, the focus of the fall was the UK. Given the lack of exposure to UK stocks, it doesn’t massively surprise me that the fund didn’t lose a lot of ground on Friday.
Would I buy the stock?
Looking at the broader picture, I think it could be a smart move to buy shares in Pershing Square. I like the unconstrained nature of the fund. It doesn’t just have to invest in stocks. If it has a firm conviction on interest rates or other financial assets, it can action this view. This could allow the share price to outperform even during a bear market for stocks.
This can be seen from the one-year performance, which is positive, even though most stock markets around the world have lost ground.
I do note that this can be taken as a risk though. The fact that it can short a stock means that losses can balloon quickly. This has been the case occasionally in the past, with founder Bill Ackman being contrarian on some picks.
Further, the share price currently trades at a large 35% discount to the net asset value. The company has commented that it’s not happy about this discount. Yet it represents a good opportunity for me to step in as a long-term investor. In years to come, if this discount reverts back to the actual value of the net assets, I’d be in profit.
When I have some free cash, I think I’ll buy Pershing Square shares for my portfolio.
