Billionaires Are Selling Nvidia, Buying These Undervalued ETFs Instead

Nvidia (NASDAQ: NVDA) has seen its stock value soar over the past two years as the largest chip supplier in the race for artificial intelligence (AI) supremacy.

Several hedge fund managers spotted Nvidia’s potential in the AI ​​space early on and made significant bets on the semiconductor stocksStan Druckenmiller amassed a significant position in the stock in late 2022 and early 2023 when OpenAI’s ChatGPT took the world by storm. At one point, Nvidia stock made up 16% of his portfolio. David Tepper, owner of the NFL’s Carolina Panthers, has also built up a significant position in the stock during the first half of 2023.

But billionaires, as a group, have started selling their Nvidia shares. This is largely due to the incredible movement of the stock. It’s already up more than 160% this year and was briefly the most valuable company in the world.

Here are some of the billionaires selling their positions in Nvidia:

• Stan Druckenmiller (Duquesne Family Office) sold 441,551 shares and all 4,895 call options, reducing his total exposure to the stock by approximately 84%.

• Philippe Laffont (Coatue Management) sold 2.9 million shares, reducing his position by 68%.

• David Tepper (Appaloosa) sold 348,000 shares, reducing his position by 44%.

• Israel Englander (Millennium Management) sold 720,004 shares and 6,910 call options, reducing his bullish stance by about a third. He also reduced Millennium’s puts, but by less than 20%, putting him in a more bearish position.

Billionaires have an incentive to take some of their money out and reinvest it in other assets to diversify their portfolios and potentially find the next big winners. Those listed above have invested much of the money from the Nvidia sale in undervalued exchange-traded funds (ETFs) that diversify away from Nvidia and offer significant upside potential.

Image source: Getty Images.

Bet big on small values

Druckenmiller and Englander added an exhibition to the iShares Russell 2000 ETF (NYSEMKT: IWM). It follows the Russell 2000 index, which is the most commonly used index for small-cap stocks.

Druckenmiller bought 31,579 calls on the ETF, worth $664 million at the end of the first quarter. That makes the ETF his largest position, accounting for 15% of his portfolio. Englander, meanwhile, trimmed his puts while adding a substantial number of calls and shares of the ETF itself.

There are good reasons to be more bullish on small caps these days. While large-cap stocks like those found in the S&P 500 have fully recovered from the 2022 bear market, small-cap stocks like those in the Russell 2000 or S&P600 have not returned to historic highs. Today’s high interest rates are much more difficult for small caps, which often rely on revolving debt to finance their growth rather than long-term bonds or existing cash flows.

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Thus, the valuation of small-cap stocks remains depressed relative to the large-cap market. gap between the forward price/earnings ratio of the S&P 500 and the S&P 600 is the largest since 2001. That could make it a great opportunity to invest in small-cap stocks right now. Druckenmiller is thinking big, and Englander is starting to buy into the idea as well.

Finding Value in China

Tepper and Laffont are looking to the world’s second-largest economy for investment opportunities. Both have added shares in the iShares China Large Cap ETF (NYSEMKT:FXI). It tracks the performance of the FTSE China 50 Index, which tracks 50 of the largest and most liquid Chinese companies listed on the market Hong Kong Stock Exchange.

Tepper purchased 6.4 million shares of the ETF, worth $153.4 million, at the end of the first quarter, representing about 2.3% of his portfolio. Laffont added 2.1 million shares, worth about $50 million, or 0.2% of Coatue’s portfolio.

Tepper is extremely bullish on China, adding many of the country’s large-cap tech names last quarter, including Alibaba Group, Baidu, PDD HoldingsAnd JD.comMost of them are in the iShares ETF.

China was slow to reopen as COVID-19 pressures eased. It now faces a housing crisis, slow economic growth and deflation as consumers slow their spending. She also faces political tensions. Stock prices fell for the third consecutive year in 2023. Although prices have recovered somewhat in 2024, the China Large-Cap ETF is still down almost 50% from the all-time high reached in early 2021 .

But the tide may be turning in China. Pandemic restrictions have been eased, and the government is rolling out stimulus measures to support the real estate sector and get Chinese consumers spending again. Those efforts began in earnest in February, and the impact on the stock market is clear. Tepper and Laffont’s new favorite ETF is up 22% since the start of February.

Given the extent of the fall in Chinese stocks, they still have a long way to go to recover. Valuations remain attractive, but there is still a lot of uncertainty about China’s ability to rebound. However, given the attractive pricing of some of the leading names in their sector, it might be worth taking a closer look at the China stock ETF.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Baidu, JD.com and Nvidia. The Motley Fool recommends Alibaba Group. The Mad Motley has a disclosure policy.

Billionaires are selling Nvidia and buying these undervalued ETFs instead was originally published by The Motley Fool

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