Druckenmiller Sold NVDA and Bought IWM: Should You?
The former hedge fund manager Stanley Druckenmiller's $4 billion Duquesne Family Office portfolio sold a large position in Nvidia stock in the first quarter, ending his position at $159 million, a reduction of roughly 84%.
Druckenmiller had built a sizeable position in NVDA in 2023 with nearly $550 million in stock and call options in the artificial intelligence (AI) chip leader, representing over 16% of his portfolio. That big bet paid off last year as NVDA’s price skyrocketed over 200% in 2023.
What was Druckenmiller’s biggest position as of the end of March? Call options on the small-cap stock proxy, the iShares 2000 ETF (IWM), according to his 13-F filing to the Securities Exchange Commission (SEC).
The portfolio shift for the former lead portfolio manager of George Soros’ Quantum Fund reflects an emerging investment theme in 2024—asset managers reducing exposure to high-priced, large-cap tech stocks and adding positions in reasonably-priced small-cap stocks.
Druckenmiller’s choice of buying IWM call options, a bet that magnifies gains if the ETF rises in value, is a strong signal that the billionaire is bullish on small-cap stocks.
Is now a good time to shift out of large-cap tech stocks and into small-cap ETFs? Why is Druckenmiller bullish on IWM?
What Is the IWM ETF?
The iShares Russell 2000 ETF (IWM) is an exchange-traded fund that tracks the Russell 2000 index, a market-cap-weighted index of small-capitalization U.S. stocks. This means the IWM ETF holds shares in about 2,000 small American companies.
With over $61 billion in assets under management, IWM is the second largest ETF on the market behind the $80 billion iShares Core S&P Small-Cap ETF (IJR).
IWM is a popular ETF among traders because of its high daily trading volume, which tends to narrow the bid-ask spread for call options, making it easy to buy and sell shares at fair prices.
Is Now a Good Time to Buy Small Cap ETFs?
Buying shares of a small-cap ETF like IWM or IJR now is essentially a bet that interest rates will fall in the short term. This is because small companies tend to be rate-sensitive, as they are more reliant on borrowing money, and when interest rates fall, borrowing costs decrease.
Lower borrowing costs make it cheaper for small companies to access capital for investments, growth initiatives, and even acquisitions, which can fuel their future earnings potential.
For long-term investors, adding a small-cap ETF to a portfolio can provide diversification benefits, as their performance is not highly correlated with a broad market stock ETF like the SPDR S&P 500 ETF Trust (SPY), and long-term returns have historically been higher than 10%.
Ultimately, deciding whether now is a good time to buy small-cap ETFs depends on an investor’s financial goals, time horizon and risk tolerance.