Stanley Druckenmiller (Trades, Portfolio), former partner of George Soros (Trades, Portfolio)’s Quantum Fund, founded Duquesne Capital Management LLC in 1981. According to reports, Druckenmiller’s fund has approximately $10 billion in assets under management. During fourth-quarter 2016, the Duquesne Capital manager gained positions in Halliburton Co. (HAL, Financial) and three exchange-traded funds: iShares Russell 2000 (ARCA:IWM), SPDR Select Sector Fund – Financial (ARCA:XLF) and SPDR Select Sector Fund – Industrial (ARCA:XLI). Druckenmiller also axed his stake in Alibaba Group Holding Co. (BABA, Financial) and the iShares MSCI Emerging Index Fund (ARCA:EEM).
Halliburton
Druckenmiller invested in 1,041,300 shares of Halliburton, taking a new position in the company. Halliburton’s share price averaged $49.86 during fourth-quarter 2016, and the billionaire investor increased his portfolio by 5.49%.
Despite having weak business operations based on its Piotroski F-score and financial strength rank, Halliburton gave a positive business outlook in its 2016 annual report filing with the Securities and Exchange Commission.
Houston-based Halliburton is a “leading provider” of services and products to the upstream oil and gas industry, providing services and products related to the exploration, development and production of energy. Like other energy companies, Halliburton’s earnings performance directly depends on crude oil prices. As crude oil prices sharply declined to a five-year low in early 2016, Halliburton reported $15.9 billion in revenues for full-year 2016, representing about two-thirds of 2015 revenues. Additionally, the energy company reported operating losses of $6.8 billion in 2016 compared to just $165 million in 2015, dragging stock prices below $40 per share.
During fourth-quarter 2016, crude oil prices rebounded, climbing to about $53 per barrel by 2017. The increases in oil prices allowed Halliburton to realize operating profits in the North American region after reporting operating losses for the first three quarters of 2016. The energy company also completed its structural cost savings goal, reducing its annualized costs by about $1 billion.
Management expects the company to position for the impending market recovery and scale up Halliburton’s platform through a combination of organic growth, investments and selective acquisitions. Management also expects that the higher crude oil prices will facilitate the market recovery process during early 2017.
Alibaba
Druckenmiller sold his 470,600-share stake in Alibaba, reducing his portfolio by 4.4%. The Chinese retail company’s share price averaged $96.28 during the quarter.
Although the company has strong financial strength and profitability, Alibaba has contracting gross margins and slowing per-share revenue growth. For the nine months ending Dec. 31, 2016, Alibaba reported net income of 31,374 million yuan ($4.6 million) and diluted earnings of 12.85 yuan per share, declining 52% and 50% from reported values from the prior year. Lower adjusted EBITA values in Alibaba’s digital media and entertainment segment, which declined nearly $2 billion from fourth-quarter 2015 to fourth-quarter 2016, contributed to lower net incomes for the final nine months of 2016.
Alibaba’s profit margins and returns are currently near a 10-year low despite outperforming over 80% of global specialty retail companies. The company’s price is near a two-year high, and its GuruFocus Business Predictability Rank is three-stars on watch.
Four gurus, including Druckenmiller, dumped Alibaba as the company has decreasing growth and value potential: John Burbank (Trades, Portfolio), Daniel Loeb (Trades, Portfolio) and Eric Mindich (Trades, Portfolio) sold approximately 1.45 million, 2.6 million and 1.158 million shares respectively.
Guru expands ETF Empire
Druckenmiller invested in 991,900 shares of the Russell 2000 ETF, 2,397,500 shares of the SPDR Financial Sector Fund and 827,100 shares of the SPDR Industrial Fund. The three ETFs averaged $128.01 per share, $21.50 per share and $60.32 per share respectively. With these three transactions, Druckenmiller increased his portfolio 23.49% in the aggregate, with 13.04% coming from the Russell 2000 transaction.
The iShares Russell 2000 ETF gives investors exposure to 2,000 U.S. small-cap companies in one single fund, allowing investors to diversity U.S. stock allocations. According to the iShares website, the Russell 2000 ETF has slightly outperformed the benchmark over the past five years.
Druckenmiller invested in the SPDR Financial Sector Fund, which includes financial services companies, insurance companies, global banks and capital markets. Such companies include Warren Buffett (Trades, Portfolio)’s conglomerate Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial). On the other hand, the SPDR Industrial Fund includes diversified industrials companies like 3M Co. (MMM, Financial)
On the sell side, Druckenmiller sold his 4,534,600-share stake in the iShares MSCI Emerging Markets Fund at an average price of $36.03. With this transaction, the billionaire investor knocked 15.02% off his portfolio.
As discussed in a previous article, the iShares MSCI Emerging Markets excludes exposure to small-cap companies and generally trades at a premium to the similar iShares Core MSCI Emerging Markets Fund. With these ETF trades, Druckenmiller primarily increased his exposure to small-cap companies, financial companies and industrial companies.
See also
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Disclosure: The author has no position in the stocks and ETFs mentioned.
