George Soros Bet The Farm On 1 ETF

George Soros needs no introduction but his portfolio may be less familiar to investors. It’s a composition of a lot of well-known companies, like Alphabet and Apple, but his largest holding will come as a surprise to many because it’s not a stock at all.

While Broadcom represents just a 1.0% stake in his portfolio and Uber a 1.1% position, Soros has bet about 5x those amounts on a single exchange-traded fund.

So, what is George Soros largest holding? 

George Soros’ largest holding is the iShares Russell 2000 ETF representing 5.6% of his portfolio.

It’s an interesting bet because the RUT has failed to gain as much traction this year as other indices. It’s up 14.2% versus the NASDAQ, which has gained 43.9% and the S&P 500 up 24.2%.

Why did Soros bet so much on this index?

Why Did George Soros Buy Russell 2000 ETF?

While the S&P 500 is largely dominated by tech titans like Apple and Alphabet, the Russell 2000 index has a small-cap focus, and features the smallest 2,000 stocks of the Russell 3000.

It’s an interesting play by Soros because he likely speculated that small-cap stocks would outperform indices like the Dow Jones Industrial Average that skew their compositions more towards larger market cap stocks.

Typically, the smaller cap positions tend to outperform on the upside when bull markets are in play and equally are more risky during downturns, and yet this year it has failed to keep pace with the flagship index, the S&P 500.

The larger number of holdings in the Russell 2000 versus other flagship indices provides a more comprehensive representation of the small cap segment but this year that strategy has failed to reward Soros. It’s a sign that the market is being led by large cap stocks and bellwethers like Microsoft, up 54.9% year-to-date.

The increased number of stocks in the Russell 2000 also translates into different sector composition compared to larger indices, meaning higher exposure to financial services, healthcare, and technology sectors, and less exposure to sectors like energy and industrials, which are more prevalent in large-cap indices.

The investment thesis behind buying the Russell 2000 is traditionally premised on the idea that small cap stocks will outperform the rest of the market when the economy is growing rapidly. Conversely, when the economy is turning down, the prevailing wisdom is to shy away from small cap and bet on blue chip companies.

So, the Soros investment thesis was a bet on a growing economy disproportionately benefiting smaller cap firms, and yet the market performance has been to fuel the returns of large cap stocks at the expense of the smaller ones.

Another reason that may have sparked Soros’ interest in the Russell 2000 is that he already had exposure to Apple, Amazon and Alphabet, representing a 1.8%, 2.7% and 5.0% of his portfolio respectively, so he wanted to diversify his exposure to include small caps too. 

His overall portfolio is an interesting composition of a who’s who of flagship tech stocks and a smattering of much less well-known positions.

What Are Soros Top Holdings?

Soros top holdings are Alphabet, representing a 5.0% stake in his portfolio, Splunk comprising 4.7%, and Abcam, which comprises a 3.7% weighting in his portfolio.

Alphabet makes a lot of sense given its wide moat and high return on invested capital. But it’s undervalued this year, with 12.7% upside to fair value according to the consensus estimate of 43 analysts.

Still, when compared to near-term earnings growth, it appears to be trading at a high price-to-earnings multiple of 25.3x.

Splunk is an interesting play because it’s up less than 50% over the past five years but this year alone it’s risen by 74.8%.

At present levels, it is overvalued based on the estimates of analysts who peg fair value at closer to $144 per share.

It’s clear why it’s grabbed Soros’s attention though by demonstrating a consistently increase in earnings per share, impressive gross margins and with net income forecast to rise again this year.

On a technical basis, now, it seems overbought on the RSI and is trading at a sky high PE multiple of 241x. The long and short of the Splunk story is that earnings must increase rapidly to justify that premium.

Finally, Abcam is likely an unfamiliar name to most investors and yet it commands a pretty large chunk of George Soros’ portfolio. It’s no surprise given that it is a maker and seller of protein research tools and is a big company with 1,800 employees.

Likely what caught Soros attention was how Abcam enjoys a niche market leadership position, carving out a dominant role in the production and distribution of antibodies and related products, essential tools in both academic research and drug development.

It’s also known for continuously expanding its product range, including primary and secondary antibodies, kits, proteins, and peptides, which collectively enable it to broaden its market appeal and customer base.

Final Thoughts

George Soros portfolio is heavily skewed towards technology stocks like Amazon, Alphabet, and Apple, as well as Splunk, Alibaba, Broadcom and Uber.

He also has takes in companies like Intuit, which represents a 1.0% holding and Booking Holdings, a 1.2% position. But his largest holding is, somewhat surprisingly, an ETF that has a focus on small-cap stocks.

It seems the reasoning for this may well be rooted in a portfolio construction theory that relies on diversification. With so many concentrated bets on larger cap firms, the Russell 2000 captures the long tail of the curve of small cap stocks, providing essential exposure without excessive weighting in the event of a downturn.

While the ETF hasn’t performed as well as its larger cap focused exchange-traded fund rivals, it has offered the diversification needed to round out his portfolio and still performed relatively well.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.