Druckenmiller Owned 5 Hot Stocks, but Only Gained 3% in the Rally? Huh?

Half his portfolio was in the likes of high-flying Amazon, but he came nowhere near the S&P 500’s 40% March-June rebound. Was caution-minded hedging to blame?

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.

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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.

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Calvert Will Score Companies on ESG to Add to Its Funds

To make the grade for its separate accounts, companies must be in the top third for at least one sustainability metric.

Calvert has created an environmental, social, and governance (ESG) scoring measurement to judge whether a company qualifies to be included in its equity separate account strategies.  

Companies included in the ESG Leaders Strategies must score in the top third for at least one sustainability metric across 200 peer groups to be considered for inclusion, according to Anne Matusewicz, responsible investment strategist at Calvert Research and Management. 

A business that ranks in the top third for an environmental score must still place at least in the top two-thirds for another metric. About 550 companies may be chosen for a fund, out of roughly 4,000 companies reviewed. 

The funds stick closely to a benchmark allocation, though they may lean slightly overweight in the information technology (IT) sector and slightly underweight in energy companies, according to Matusewicz. 

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That mirrors other strategies that focus on financially material ESG factors, meaning that companies are assessed on sustainability issues that have a significant impact on a company’s business model. For example, the S&P 500 ESG Index is expected to mimic the benchmark while also including sustainability values. 

”Companies that achieved top ESG scores in financially material factors have historically produced stronger financial performance than those with weaker ESG scores,” Jade Huang, portfolio manager at Calvert, said in a statement.

Calvert is also the only fund manager in the US that offers a full range of 28 equity, fixed-income, allocation, and sector funds with a sustainability focus, according to Morningstar. 

Calvert’s Matusewicz said the firm differentiates itself from other firms with its structured engagement work with companies. Calvert has its own proxy voting guidelines to file shareholder resolutions and engage companies on issues that the firm feels can improve their performance. 

“We’re talking to companies to improve operations to improve performance,” Matusewicz said. 

The seven ESG Leaders Strategies are: US ESG Leaders, Tax-Managed US ESG Leaders, Global ex.-US Developed Markets ESG Leaders, Tax-Managed Global ex-US Developed Markets ESG Leaders, Global Developed Markets ESG Leaders, Tax-Managed Global Developed Markets ESG Leaders, and Emerging Markets ESG Leaders. 

Calvert will also make some strategies available for tax-paying investors through a partnership with Parametric Portfolio Associates, which, along with Calvert, is an Eaton Vance subsidiary. 

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