Bridgewater Associates is the world’s largest hedge fund, currently managing $140 billion in assets. Its CO-CIO and Founder, Ray Dalio made some dramatic changes as unveiled by the recent 13F filings.
The firm offers three options to its clients namely the Pure Alpha Fund, the All-Weather Fund, and the Pure Alpha Major Markets Fund, amongst which the Pure Alpha Fund seeks to outperform through active management in non-correlated asset classes, whereas the All-Weather Fund is managed exclusively through Dalio’s famous notion of the “all-weather portfolio” which involves a lot of fixed income securities and treasury securities within the US and other emerging economies.
More specifically, the “All Weather Fund is reported to contain 40% inflation-linked bonds, 30% treasury bills, 20% treasury bonds, and 10% gold”.
After examining their recent 13F filings it seems that Bridgewater Associates have taken a lot of active positions within the Chinese market as opposed to investing more within the US. Dalio has always been a big believer in “diversifying your investments” which was evident through the firm’s diverse holdings in a wide variety of ETFs, primarily the ones managed by Vanguard.
ETFs allow you to invest in a diverse basket of securities as opposed to one single company or a class of security.
For a very long period of time, Dalio had been accustomed to holding a large portion of the entire market through various ETFs, and in times of economic uncertainty, he would usually shift his stance to holding more gold.
Their equity portfolio is currently worth $8.3 billion, up from $5.96 billion from Q2 marking a significant improvement in the fund’s performance, not necessarily because the US is rebounding, but because of their investments in China which seems to have recovered faster than the rest of the world had predicted.
Out of the 430 holdings, he had exclusively invested in two gold ETFs in Q2 of 2020, when he was positioning his firm for a market crash amidst the coronavirus pandemic.
Bridgewater added 12.76 percent to the Vanguard Emerging Markets Stock Index Fund (VWO) making it the fund’s third-largest holding in addition to the SPDR Gold Shares (GLD) that it already held in addition to having acquired stakes in the world’s second-largest gold ETF, iShares Gold Trust.
The fund has significantly cut its position in the SPDR S&P 500 ETF Trust (SPY) signaling to investors that Dalio isn’t as bullish on “Corporate America” as he once was.
The S&P 500 is a mirror of the entire US stock market, offering the top 500 companies to its investors all within a single basket, without an individual having to risk his entire savings on a handful of lucrative companies that he/she might be bullish on.
Most of the investors who prefer holding a ‘piece of America’ would invest in the S&P 500 as opposed to actively managing the risk of having to hedge their portfolio on a daily or weekly basis.
Dalio reduced Bridgewater’s stake by 21.33 percent implying to investors that he is no longer bullish about the entire US market which he has been explicitly stating through his recent interviews whereby he went onto discuss how he had been preparing for a market crash and that the faith on the US Dollar as a reserve currency is at jeopardy.
He tripled his position in the iShares MSCI Emerging Markets ETF and added a 40 percent stake of AliBaba to Bridgewater’s already impressive portfolio.
Besides AliBaba (BABA), he has added active positions in the Chinese electric automaker Nio, the Chinese equivalent of Amazon JD.Com, along with Yum foods and Pinduoduo.
They have decided to take more of an active stance in individual Chinese businesses that they feel bullish about, and the reason I say this is because they sold out of the iShares MSCI China ETF which tracked the overall Chinese economy.
Rather than betting on a bunch of Chinese businesses where corporate governance and shadow banking are a concern, they are exclusively adding positions in individual businesses which they are bullish about.
So what about their stance on the US?
Turns out they are investing heavily in large-cap consumer staples such as Procter & Gamble, Colgate Palmolive, and Kimberly Clark, which manufacture essential items and cleaning accessories for which there will a continued demand even as the death toll from the COVID-19 surges.
Consumer staples provide stable dividends even during recessionary times and with the uncertainty of a new president entering the White House, Dalio might be aiming at reducing his overall risk exposure to abrupt policy changes, tax cuts, and fiscal measures.
Other consumer discretionary positions include Walmart, Costco, Coca-Cola, McDonald’s, Chipotle, Starbucks, and UPS.
What does this mean for investors?
The biggest takeaway is the major cutback from major US ETFs such as the IVV and SPY. They might not be bullish on the entire US market, rather they are trying to seek alpha through investing in rising consumer-centric markets within Asia and other emerging markets.
In the grand scheme of things, these investments account for $8.3 billion out of $140 billion. If you are an investor who is focused on investing for the long term as opposed to swing or intra day trading, then these changes may be very minute.
However, prevention is better than cure, and if you prefer holding a “diverse basket” of securities trying to replicate Dalio’s “All Weather Portfolio” might prove to be a lifesaver!
Disclaimer: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.