By Ryan C. Dallavia
Former hedge fund manager, Stanley Druckenmiller, may not be picking stocks for the general public, but he's made big bets in his family trust that had $2.2 billion in its 13F portfolio. Below are his positions at the end of the first quarter. We will look at his sector bets and hedging mechanism first, followed by positions greater than or equal to 1 million shares.
At the close of 1Q12, the trust held 35 positions. Call options on the SPDR Gold Trust ETF (GLD) was his largest position at 38.6% of the portfolio's value. It has been a bumpy ride down since then, when GLD was trading at around $162. At the time of this writing, the shares are at $157.43. This isn't an attempt to call the gold market's bottom. The gold investments are a hedge. As you will see, the portfolio tends to be tilted towards cyclical stocks. This will offset any losses he might sustain should the market be overcome by fear brought on by bad news.
Druckenmiller also appears to have made a sector bet. His second largest bet was on restaurants, which represented 16% of the portfolio by value or 12% on a per share basis. The largest positions were in YUM! Brands, Inc. (YUM) at 5% of the portfolio, McDonald's Corp. (MCD) and their spin-off Chipotle Mexican Grill (CMG) both at 4%, followed by Starbucks Corporation (SBUX) at 3%, and a vanishingly small position in Dunkin Brands Corp. (DNKN). Performance has been mixed across the group with several out performing for much of the last 6 months, only to go south in recent weeks. SBUX notwithstanding, they are operators of value branded restaurants (i.e., the type consumers trade down to in tough times) and, thus, not necessarily a bullish play on the economy.
The fund also contained multiple biotech & pharmaceuticals stocks, which together comprised 15.3% of the fund by value and 30% on a per share basis. His largest positions were in Elan, Corp. (ELN), Pfizer, Inc. (PFE), and Merck & Co. (MRK) at 2.5%, 2.4%, and 2.3% of the portfolio. Celgene Corp. (CELG) stood at 2.1% of the portfolio's value. He also maintained de minimis positions in the following companies: Amgen, Inc. (AMGN), Biogen Idec, Inc. (BIIB), Hospira, Inc. (HSP), Incyte Corp. (INCY), Intermune, Inc. (ITMN), and Abbott Laboratories (ABT). Performance throughout these industries has been mixed. We suspect they may be long-term bets on an economic upswing.
Six stocks were levered to oil and/or natural gas. As a group, the holdings represented 5% of the portfolio's value and 11% of its share count. The stocks were as follows: Cheniere Energy, Inc. (LNG), Halliburton Co. (HAL), Tesoro Corp. (TSO), Jacobs Engineering Group, Inc. (JEC), Westport Innovations, Inc., (WPRT), and Valero Energy Corp. (VLO). Note that JEC is only .3% of the portfolio. Performance among the stocks has been largely positive as of late. The following are outperformers, viewed on a 6-month basis, at the time of this writing: LNG, TSO, and VLO. This is yet another cyclical play on economic activity.
A number of positions were held across a variety of sectors. Collectively, these represent 30% of the portfolio's value and 71% of its share count. Individually, these stocks represent the largest holdings in the portfolio by share count where "largest" is defined as 1 million shares and up. The stocks are as follows: Altria Group, Inc. (ALT) at 3.4 million, Broadcom Corp. (BRCM) at 1 million, Elan Corp at 4.0 million, Incyte Corp. at 1 million, Kraft Foods, Inc. (KFT) at 1.3 million, Merk & Co. at 1.3 million, Pfizer, Inc. , at 2.3 million, Starbucks Corp. at 1.2 million, SunTrust Banks, Inc. (STI) at 1.1 million, Wells Fargo & Co. (WFC) at 1.5 million, and Yum! Brands, Inc. at 1.6 million, and the SPDR Gold Trust ETF at 5.3 million. Except for those noted above, these positions individually comprised approximately .4% to 3% of the portfolio's value. It is worth noting that, with the exception of the sector bets mentioned above, no sector dominated when the portfolio is viewed from this angle.
When examined either from a value or share count perspective, Druckenmiller's strategy is clear. This is a cautiously optimistic portfolio hedged mostly by gold and, in part, value restaurant chains. Consequently, he would profit should a sustained economic upswing ensue, and his winnings would be reduced by the hedge provided by GLD and, to an extent, by the value restaurant chains plus the positions in non-cyclycal Kraft Foods, Inc and Altria. Given that the recovery is proceeding slowly, it is more than likely that a majority of the positions are still in the portfolio. We, therefore, believe these are Druckenmiller's top picks at the present time.
Disclosure: I am long HAL.