Here’s a puzzle for you: How could legendary investor Stanley Druckenmiller own some of the hottest stocks in creation, and yet his portfolio advanced just 3% during the market’s spring surge?
After a one-month death spiral that ended March 23, as Washington prepared to pass its ginormous rescue effort, stocks took off and regained all the lost ground. The S&P 500 climbed a daunting 40% and nearly matched the previous (Feb. 19) record.
Druckenmiller, whose Duquesne Family Office had $2.46 billion in assets as of March 31, held a full house of mega-growth names, according to regulatory filings. His top five holdings, ranked from the biggest positions to the smallest, were Amazon, Netflix, Workday (a cloud service provider), Facebook, and Microsoft. This quintet comprised half his fund’s assets.
Not only that, three of them matched or almost matched the index’s 40% increase (Amazon, Workday, and Microsoft), while Facebook soared 61%, and Netflix scored a not-shabby 20% appreciation.
During the February-March slide, when the benchmark index lost 34%, Dusquesne didn’t suffer like so many. In fact, it was up a small amount, 2%. But when the market catapulted aloft, he didn’t join in the rise. “I was up 2% the day of the bottom, and I’ve made all of 3% in the 40% rally,” Druckenmiller said in a CNBC interview. “I missed a great opportunity here. Won’t be the last time.”
Now that’s telling. Sounds like he had some hedges in place that he kept on too long. After all, before he packed it in to run his family office, Druckenmiller was a—you guessed it—hedge fund manager. In fact, one of the most celebrated ever.
In 1992, he helped his then-boss, George Soros, “break the Bank of England,” as the phrase went, by shorting the British pound. For 10 years on his own, until he quit running others’ money in 2010, his Duquesne Capital hedge fund never had a down year and scored an average 30% annually.
A key goal of a hedge, of course, is to cushion you in down times. The problem is that it can limit your upside if the market takes off, as it did in late March. Dusquesne wouldn’t comment on the reason for his lackluster recent showing.
If this diagnosis is correct, why did he keep the hedges in place? Because he didn’t believe in the rally. In May, Druckenmiller warned about owning stocks. He termed the risk-reward calculation for equities the worst he’d ever encountered, and he judged the stimulus program insufficient to tackle the economic unraveling that the coronavirus pandemic wrought.