Asset AllocationJuly 20, 2021

Ackman: Delta Variant Won’t Stop a Roaring Economy

Recovery stocks are the place to be, says hedge fund chief, in contrast to his jeremiads of 2020.

Reported by Larry Light

Hedge fund big shot Bill Ackman had a glorious 2020, betting on the pandemic to wreak havoc. And now? He’s put his chips on the economy’s comeback, which he claims even the Delta variant of the coronavirus won’t derail.

The variant simply isn’t that potent a threat to the economy, the CEO of Pershing Square Capital Management told CNBC. “I hope what it does is that it motivates anyone who doesn’t have the vaccine to get the vaccine. I don’t think it’s going to change behavior to a great extent,” Ackman said. “You are going to see a massive, in my view, economic boom. We are going to have an extremely strong economy coming in the fall.”

US COVID-19 infections have doubled over the past month, topping a 16% global increase. Ackman contended the variant is less deadly than other strains, and the US could attain herd immunity quicker as more people recover from the virus’s latest version.

What does that mean for investments? Bond yields will move much higher in 2021’s second half, amid recovery from the pandemic, he predicted. Right now, the benchmark 10-year Treasury note’s yield sits at a low 1.18% yield, down from 1.74% at the end of March. And it dipped another 0.2 percentage point Monday. Ackman labeled that a buying opportunity. “Today’s move—I would borrow as much as you can in the long-term fixed rate on the basis of today’s rates,” he said.

Ackman opined: “Short rates I think are going to go up a lot faster than people think. Coming to the turn of the year, I think we are going to have meaningfully higher yields as people realize the economy is going to make a big recovery.” Of course, not everyone agrees with him. A Wall Street Journal survey of economists found they expect economic growth to start cooling, diminishing from a 9.1% annual level in the just-completed second quarter to 3.2% next year.

Certainly, if rates go up, bond prices slump. Hence, Ackman is going heavily into recovery stocks, such as those in lodging, restaurants, and retail. So his top holdings include Hilton, Chipotle, and Lowe’s. He recently bought more Domino’s Pizza shares, boosting his position a percentage point to 8.2% of his portfolio.

His sunny view is a at odds with his dour assessment in March 2020, when he warned investors that “hell is coming.” He urged the White House to lock the country down to thwart the infection’s spread. Around that time, he made a bearish bet that snagged him a $2.6 billion profit: He wagered on credit default swaps, in a bet that investment-grade and high-yield indexes would tank. They obligingly did.