The poor performance of the Soros fund is even more interesting because the fund's largest holdings are gold and gold stocks which performed superbly in 2010. For example, the largest holding in the Soros fund is the physical gold ETF (GLD) which gained over 25% in 2010. The fund had 8.5% of assets in the gold ETF. Secondly, Soros had large stakes in gold miners such as Novagold (NG) at 2.4% of assets and Kinross Gold (NYSE:KGC) at 0.98% of assets. Novagold gained over 100% in 2010 rising from $6 to $14 as the price of gold soared.
This begs the question, why did Soros underperform in 2010?
First of all, it should be noted that Soros retired from active management in 2000. While he managed the portfolios, the fund returned an average of 30.5% per year between 1969 and 2000. Soros returned to active management in 2007 prior to the financial crisis and generated a 32% return for the year. However, BlackRock co-founder Keith Anderson has served as chief investment officer over the last 3 years as Soros has focused on philanthropy.
The underperformance is most likely related to the short side of the portfolio. For example, in the third and fourth quarter of 2010 Soros made a large bet against emerging markets. He opened a $360 Million short position using put options on iShares Emerging Markets ETF (EEM). This put position is 4.74% of the entire portfolio. It is unknown which expiration date Soros used in setting up the put position. If the put position was in near dated puts (3 months) it certainly would have been a disastrous position in Q3-Q4 2010. EEM was a strong performer since July 2010 where it gained over 25%.
Soros also shorted BHP Billiton (NYSE:BHP) with $72 Million of put options. Again, that would have been a disastrous performer over the last six months as BHP has risen 46%.