Stanley Druckenmiller (Trades, Portfolio) is arguably one of the greatest investors in history. Over a 30-year period, his fund never once had a down year. Average annual returns exceeded 30%. Few (if any) investors can match this record of success, especially considering Druckenmiller achieved these results with a multibillion-dollar portfolio.
While he’s known for his aggressive strategies and bold wagers, Druckenmiller appears to be very cautious about the current environment. So cautious, in fact, that he’s reduced his net market exposure to zero, while loading up on ultra-safe securities like U.S. Treasuries.
What’s making Druckenmiller nervous? While he has previously said he is confident the U.S.-China trade war will end amicably, escalations continue unabated. Following a May 6 tweet from President Trump that further exacerbated the feud, Druckenmiller “went from 93% invested to net flat and bought a bunch of Treasuries.”
Importantly, Druckenmiller isn’t completely out of the market. Similar to other ultra-successful hedge managers like Seth Klarman (Trades, Portfolio), he is simply reducing his exposure to market-wide fluctuations. Even if you’re confident, he argues, it’s likely prudent to hedge your bets. “So I think if you’re confident in your long-term view and ability to make money, this is not a great environment to be going and betting the ranch. Not short, not long,” he said.
Other top gurus are also increasingly bearish. Klarman appears increasingly nervous about 2020, and many reports suggest his portfolio consists of 30% cash.
There is an important caveat, however. Druckenmiller is a protegè of George Soros (Trades, Portfolio), who mentored him about making huge bets based on top-down, macroeconomic calls. According to Reuters, Druckenmiller’s most successful bet was as the chief investment officer for Soros' Quantum Fund. “He helped engineer a huge bet against the British pound in 1992,” Reuters reported. “It earned the firm $1 billion and helped keep Britain out of Europe’s common currency union.”
In the current environment, it’s no wonder he’s finding macro bets difficult to make.
Rapidly changing macro conditions are partially what forced Druckenmiller to shutter his hedge fund in the summer of 2010. As Reuters reported at the time, managers like Druckenmiller “faced fallout from the bursting of the technology bubble, the introduction of the new European currency, a bear market, and then the subprime mortgage crisis, which in 2008 left the hedge fund industry with its worst ever returns.”
“I can’t make 30% a year anymore and I don’t even charge fees,” Druckenmiller said recently. “It’s a depressing environment.”
Still, Druckenmiller is the latest of several gurus to believe today’s markets are difficult to invest in. If the economy dips, he thinks U.S. Treasuries are “the best game in town,” adding that “gold is not bad either.”