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Lately, it seems like every major index in the world has hit a new record, except the FTSE 100.
However, that could be about to change because the Footsie has been rising and is now within striking distance of the 8,000 points it briefly reached in early 2023.
Here's why I think it will quickly surpass its record close of 8,012 this year.
It's all about rates.
The market now appears to be pricing in three central bank interest rate cuts by the end of this year. That would reduce the base rate to 4.5%.
This is not a wild assumption given that inflation has been falling rapidly.
In fact, Bank of England Governor Andrew Bailey said markets are “reasonable“Expect more of a rate cut in 2024 given UK inflation is moving in”correct address”.
Compared to his usually cautious tone, that's actually optimism.
Meanwhile, FTSE 100 earnings, dividends and buyback forecasts remain strong for this year and next.
Given all this, it's hard not to be optimistic. And I just read that KPMG economists predict interest rates will fall to 3% in 2025. In that scenario, stocks are bound to rise, right?
So, with egg on my face, I'm going to say that the FTSE 100 will end the year above 8,500.
This stock could have more to run
One Footsie stock that I see continuing to do well is Pershing Square Holdings (LSE: PSH).
This is the investment trust vehicle of billionaire hedge fund manager Bill Ackman.
The share price has experienced an absolute collapse, rising 48% in one year and 212% in five.
In 2023, Pershing generated a net return of 26.7%, slightly above the S&P 500. Incredibly, this was achieved with only one of the 'Magnificent Seven' (Alphabet).
Since its inception in 2004, the fund has generated a cumulative NAV return of 2,078% versus 592% for the S&P 500.
This has been achieved by maintaining a highly concentrated portfolio of 8 to 12 stocks, as well as perfectly timed macro bets using derivatives (common in hedge funds).
In early 2020, for example, Ackman made $2.6 billion on a $27 million outlay (almost a hundredfold return) by betting that a Covid outbreak would cause the market to crash. This opportunism helped offset sharp market declines.
Of course, derivatives add complexity and can increase risk. And the high-conviction portfolio means that one or two stragglers could seriously hurt annual performance.
Below are the performance contributors and detractors in 2023 and 2024 (through March 19).
Despite this outperformance, the shares at £41 are still trading at a 23% discount to the fund's NAV. A constant problem here has been high management and performance fees.
However, Ackman's long-term goal is to reduce performance fees to zero with strong returns and the launch of new funds. One of those upcoming funds is one listed in the United States called Pershing Square USA.
It will largely reflect the established investment strategy, but without additional performance fees. Ackman aims to raise $10 billion for this.
I think the launch of this fund, coupled with a rise in the FTSE 100, could push the shares higher. I'm already a shareholder, but I'd be happy to invest again if I had extra money.
