Billionaire investor Stan Druckenmiller, known for his successful investments in Nvidia, has shifted his focus towards small-cap stocks after cashing out some of his Nvidia holdings. Druckenmiller initially invested in Nvidia in late 2022 and added to his position throughout 2023, with the stock representing a significant portion of his portfolio. However, as Nvidia’s stock price surged past $900, Druckenmiller decided to sell some shares and all call options, reducing his position by 84%.
Druckenmiller’s move away from Nvidia comes as he places a large bet on small-cap stocks, particularly through call options on the iShares Russell 2000 ETF. Small-cap stocks have underperformed compared to larger companies like Nvidia, with factors such as sensitivity to interest rates and economic downturns hindering their performance. However, Druckenmiller sees potential for small caps to rebound, with expectations of interest rate cuts and a possible recession avoided.
Despite recent underperformance, Druckenmiller believes small caps historically outperform in the long term, especially when the valuation gap between small and large-cap stocks is wide. The current valuation gap between small and large-cap stocks is at historically low levels, suggesting potential for small caps to outperform in the coming years.
Investors looking to follow Druckenmiller’s lead can consider investing in the iShares Russell 2000 ETF or focusing on small-cap value stocks, specifically profitable small-cap value stocks. Small-cap value stocks have historically been the best-performing segment of the market, outperforming small-growth stocks. Druckenmiller’s confidence in small caps, coupled with positive indicators in the market, suggests adding a small-cap tilt to a portfolio could be a wise decision.
Overall, Druckenmiller’s shift towards small-cap stocks highlights potential opportunities in this segment of the market, especially for investors looking for long-term growth prospects. Adding exposure to small-cap stocks, either through an ETF or actively managed funds, could prove beneficial in a market environment where small caps are expected to outperform their larger counterparts.
Article Source
https://www.fool.com/investing/2024/05/22/billionaire-stan-druckenmiller-sold-nvidia-and/
