If you’re a little uneasy about the market’s relentless march higher even amid such bad news as the out-of-control coronavirus pandemic, rising tensions with China, and an impending presidential election, you’re not alone.
Bill Ackman, billionaire hedge fund manager at his Pershing Square Capital Management, said this week that while he’s bullish on U.S. stocks in the long run, he has concerns in the short term.
“We are long-term bullish on America; We are long-term bullish on the markets,” Ackman told CNBC. “But I would say I’m cautious on markets over the next period of time.”
The companies Ackman is particularly worried about? Those carrying a lot of debt – which he says will have a hard time surviving as the country continues to struggle to reopen fully as coronavirus cases rise.
“We have today a short position in a high-yield index. We are bearish on highly levered companies,” Ackman said. “The highly levered businesses will struggle because it will take time for the economy to reopen.”
“I don’t think the Fed is going to bail out companies with too much debt,” the hedge fund manager added, given that such companies have a high level of debt to cash and thus a stronger likelihood of default or bankruptcy during a crisis.
Still, even as Ackman is betting against high-yield companies, he said he’s maintained his positions in Hilton (NYSE: HLT), Lowe’s (NYSE: L), Restaurant Brands (NYSE: QSR), and Starbucks (NASDAQ: SBUX), and said that Pershing is roughly “98% long.”
“We are not short any stocks,” Ackman added. “We are obviously bullish on America, owning restaurant companies, hotel companies, real estate development companies. These are a bet that the country will recover.”
Ackman’s CNBC interview comes as Pershing Square is debuting a special-purpose acquisition company—or SPAC—that will trade under the ticker PSTH.U. With the SPAC, Pershing intends to see a minority position in a “private, large capitalization, high-quality, growth company,” according to documents filed with the SEC.
“Our goal is to buy a minority interest in a business, and what I mean by that is we’re going to merge with someone. We’re going to take them public and our shareholders will own 20%, 25%, 30% of the company,” Ackman said. “We believe we can make an advantageous deal for our shareholders, really bringing a great opportunity for a company to accelerate its growth, deleverage the balance sheet, and provide capital for investors seeking to make an exit.”
“We think it’s a great structure and a wonderful reception,” he added.