While George Soros has had the Midas touch in years gone by many are now beginning to wonder whether this touch is deserting him. This is a man who was extremely critical of Donald Trump ahead of the presidential campaign which resulted in a very negative forecast for the US market in general. The publication of his dealings in the final quarter of 2016 and early 2017 do not make for good reading. So, did George Soros get stung by the Trump rally?
Shorting exchange traded funds
It is believed that the George Soros fund took out put options against exchange traded funds investing in a small cap index and a large cap index. The idea was that Donald Trump would depress the markets and both small and larger companies would suffer. Data shows that these two funds have in fact rallied since late last year thereby creating paper losses in the hundreds of millions of dollars. It is unclear at this moment in time whether these positions have been closed or they are still open.
We have recently covered exchange traded funds as they are fast becoming the darling of the private and corporate investment market. They offer a way in which to track a chosen index via units which are tradable on the stock exchange. They also allow professional investors such as George Soros to take out short positions on individual indices as opposed to individual companies.
Backing Hillary Clinton was another bad bet
It is widely known that George Soros backed Hillary Clinton’s presidential campaign to the tune of $10.6 million. There has also been much speculation about funding from the Soros Foundation for those pursuing legal action to try and frustrate President Donald Trump. This may just be speculation but there is no doubt that George Soros does not see eye to eye with Donald Trump and this has impacted his investment decisions rather heavily.
Hedging his bets
Like any experienced investor George Soros also put in place a hedge against his short positions by taking out call options (the option to buy) on some of the larger banks and financials. Using a mixture of finance related exchange traded funds and individual company investments it is believed he will have clawed back a large amount of his short sale losses. It will be interesting to see how, or if, he has changed his investment strategy over the last few weeks because the markets continue to go from strength to strength.
Looking ahead
It is most certainly too early to write of George Soros because ultimately there is every chance that his bearish position on the US stock market could eventually be proved correct. The market is currently enjoying a “Trump rally” but the new president is not exactly making friends and influencing people in a positive manner. At some point this will come back to bite Donald Trump on the backside but at this moment in time he is enjoying his honeymoon period.
Investors also need to remember that Donald Trump has promised significant investment in infrastructure but so far little of this has been confirmed. Many investors and analysts are banking on this additional investment to inject more life into the US economy.