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Invest Like Bill Ackman With These ETF Strategies

Billionaire investors Bill Ackman, founder and CEO of Pershing Square Capital Management, recently revealed his investing likes and dislikes at the current level. The activist investor recently attracted a great deal of attention by amassing more than $2 billion in bets against markets in March, as pointed out by CNBC.

So, Ackman’s tips could be really useful for retail investors who can apply the idea on ETF plays. Notably, ETF investing leads investors to a basket approach and minimizes stock-specific concentration risks.

Bullish on America

Ackman is bullish on the U.S. economy and markets over the long term. A few days back, billionaire investor Warren Buffett also shared the same opinion. Since small-cap investing is the best way to bet on domestic economic recovery, investors may take note of pint-sized stocks amid the gradual reopening of the U.S. economy.

Though rising virus fears have forced some U.S. states to reverse the opening of the economy, U.S. magic will prevail over the long term. Small caps may gain on massive monetary and fiscal stimulus as well as cheaper valuation once the virus situation stabilizes.

Though the labor market still has a long way to go to fully recover, consistent recovery is being noticed in retail sales. This points to solid pent up demand among Americans.  So, over the long term, one can bet on smaller-cap ETFs like iShares Core S&P Mid-Cap ETF IJH and Vanguard Small Cap ETF VB.

Long-Term Bet on Reopening Trade

Ackman revealed that he continued to own the same positions in Hilton, Restaurant Brands, Lowe’s and Starbucks, as published on CNBC. His hedge fund is about “98% long.” So, if you want to follow him, you can invest in restaurants, hotels and real estate development companies with definitely a long-term view.

With vaccine hopes becoming stronger, we can expect the virus issue to stabilize over the long term which will result in the bounce back of the battered reopening trades.  Invesco Dynamic Leisure and Entertainment ETF PEJ and Vanguard Real Estate Index Fund ETF Shares VNQ are two ways to play the famous investor’s conviction.

Stay Away From Highly Levered Companies

“The highly levered businesses will struggle because it will take time for the economy to reopen,” Bill Ackman said as quoted on CNBC. He added that “I don’t think the Fed is going to bail out companies with too much debt.” Such companies carry a high level of debt to cash and therefore are prone to default.

As a result, investors may choose to invest in companies that have low debt-equity ratio. One such sector is technology which currently has a debt-equity ratio of 0.17X versus 0.75X ratio possessed by the S&P 500 ETF (IVV). Technology ETFs like Vanguard Information Technology ETF (VGT), Technology Select Sector SPDR Fund (XLK) and iShares U.S. Technology ETF (IYW) can be good options here.

Bet Against High-Yield Bond ETFs

Ackman is betting against high-yield companies despite the fact that the Federal Reserve is purchasing “fallen angels,” or companies that slipped from investment grade to junk due to the coronavirus pandemic, as noted by CNBC. Lack of financial strength in these companies have probably made the investor cautious about high-yield bonds.

VanEck Vectors Fallen Angel High Yield Bond ETF ANGL), iShares U.S. Fallen Angels USD Bond ETF (FALN) and SPDR Barclays High Yield Bond ETF (JNK) are some of the examples of high-yield bond ETFs (read: Is 60/40 Rule Obsolete Now? 5 High-Yielding ETFs to Play).

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Vanguard Real Estate ETF (VNQ): ETF Research Reports

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

iShares Core SP MidCap ETF (IJH): ETF Research Reports

Vanguard SmallCap ETF (VB): ETF Research Reports

Invesco Dynamic Leisure and Entertainment ETF (PEJ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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