Bill Ackman's Hedge Fund is Hedging Against a Wave of Corporate Defaults
Billionaire investor Bill Ackman is hedging his portfolio against corporate defaults despite positive vaccine news, according to MarketsInsider.
Ackman made the same move in February earlier this year when he realized how devastating COVID-19 would be. His hedge fund, Pershing Square spent $27 million on credit-default swaps on high-yield and investment-grade bonds. Credit-default swaps protect the buyer from an issuer defaulting. Once the pandemic's severity became well known, the credit-fault swaps surged and the hedge fund eventually closed out when they reached $2.6 billion in value.
The hedge fund took $2 billion after closing its credit-default swap position and shoveled it into beaten-down stocks on March 18, when markets were continuing to sell-off. The fund increased its position in Berkshire Hathaway, Hilton, Lowe's, Restaurant Brands, and Starbucks. According to the latest portfolio update released with data up to October 31, the fund is up 44 percent this year.
Now, Ackman is making the same move 9 months later and on the same day as news of a highly effective COVID-19 vaccine broke. He believes the COVID-19 vaccine will reduce the care individuals are taking when it comes to the coronavirus. "I hope we lose money on this next hedge," Ackman said. "What's fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine."
Furthermore, he believes investors are failing to recognize the continued threat of COVID-19.