I’m looking for quality UK shares to grow my portfolio. One stock I am currently considering is Pershing Square (LSE:PSH). Should I buy or avoid the shares?
Pershing is an investment trust that looks for long-term investment in primarily North American companies. Founded in 2012, the fund is managed by renowned investor Bill Ackman. The billionaire is known as an activist investor, which is defined as an investor who typically looks to get involved in how a business is run.
So what’s happening with Pershing shares currently? Well, as I write, they’re trading for 2,705p. At this time last year, the stock was trading for 2,453p, which equates to a 10% return over a 12-month period.
UK shares have risks
One of the main issues I always consider when it comes to investment trusts and hedge funds is the risk of over-diversification. This is basically that, when there are lots of different types of companies in a fund, it can often have an overall negative impact on the rate of return. This can be due to different sectors having varying levels of returns. I do understand that diversification is important, but sometimes too much can be negative. This is something I carefully consider when looking at investment trusts like Pershing.
Next, even renowned investors get it wrong sometimes. For example, Ackman’s Pershing bought Netflix stock and to say the investment did not yield returns, would be a fair assessment. In fact, it sold its stake at a $400m loss back in April. However, I do understand that a past track record is not a guarantee of the future.
The bull case and my verdict
So let’s take a look at some of the positives of Pershing shares then. Whenever I consider any UK shares, I look at rates of returns. These can be broken down further when it comes to investment trusts. For example, I want to know the rate of cumulative return. For Pershing, a cumulative rate of return of over 230% since its inception is impressive.
Next, I look at returns in the form of dividends that would boost my passive income. The current dividend yield of Pershing shares is 1.5%. This is lower than the FTSE 100 average of 3%-4%, but I would expect this to continue to grow. I am aware that dividends are never guaranteed, however.
At current levels, Pershing shares look dirt-cheap to me on a price-to-earnings ratio of just under three. The general consensus is that a ratio of 15 and below on the FTSE 100 represents value for money.
Overall, I like the look of Pershing shares and would buy some for my holdings. As well as the passive income opportunity, cumulative rate of return, and dirt-cheap shares, I feel like I can learn a lot about stock picking and boosting my own portfolio too if I bought the shares. Ackman and his team have a great track record. I might get better at picking UK shares that will boost my returns in the long term by learning from them and their habits.
The post UK shares: should I buy this cheap investment trust for growth and returns? appeared first on The Motley Fool UK.
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Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.