Dalio’s portfolio contains 261 stocks, and 32 percent of it is now in emerging markets ETFs. His biggest purchases during the fourth quarter were Vanguard Emerging Markets ETF (VWO), iMCSI Emerging Markets Index Fund (EEM), BMC Software (BMC), Watson Pharmaceuticals (WPI) and Berkshire Hathaway Inc. B Shares (NYSE:BRK.B).
Vanguard Emerging Markets ETF (VWO) and iMCSI Emerging Markets Index Fund (EEM)
Dalio increased his holding in the Vanguard Emerging Markets ETF by 2,233,700 shares that he paid about $39.50 each for in the fourth quarter of 2011. The purchase brought his total holding to 29,957,622 shares. He opened this position in the fourth quarter of 2009.
This ETF contains 906 stocks, whose biggest 10 holdings comprise 19.1% of total assets, located in emerging markets such as China (17.7 percent), Brazil (15.8 percent), Korea (14.6 percent) and Taiwan (11.9 percent). In the last year it lost 18.68 percent, and is up 19.48 percent over the last three years. It has the highest level of potential risk and potential reward Vanguard offers. The median market cap of companies in the fund is $17 billion, and the median P/E is 11.5 and P/B is 1.8.
Dalio also increased his position in the iMSCI Emerging Markets Index Fund (EEM) by 1,427,100 shares in the fourth quarter at an average price of $39 per share, bringing his total holding to 21,203,400 shares. Dalio opened this position in the first quarter of 2010.
This emerging markets fund contains 840 stocks, weighted 17.2% in China, 15.4% in Brazil, 14.6% in South Korea and 10.7% in Taiwan. It also went down 18.87% last year, and is up 17.35% over the last three years. The median P/E is 15.85 and P/B is 2.91, and media market cap is $3.79 billion.
The fund was down largely due to the worsening sovereign debt crisis in Europe and inconclusive federal dect ceiling talks in the U.S. The index fell by 9 percent in August, its worst performance since October 2008. Emerging market performance was also impacted by a decline in the U.S. dollar, which depreciated 6 percent versus the Chinese yuan for the year, largely due to historically low U.S. interest rates and fiscal deficit concerns.
The emerging markets investments tie into Dalio’s view of the macro environment. He said in October 2011 that he believes the world has become a dichotomy of debtor-developed nations and creditor-emerging nations. Emerging nations like China, he says, are competitive and beginning to have big surpluses (which they’re lending to the developed world).
BMC Software (BMC)
Dalio increased his stake in BMC software Inc. by 736,755 shares in the fourth quarter at about $36 per share, bringing his total holding to 822,460 shares. He opened the position in the third quarter of 2011 with 85,705 shares at $43.85, though he had traded the stock numerous times before. That quarter, the stock had a 30% downturn.
BMC Software makes software that helps IT organizations manage their business services and applications across distributed, mainframe, virtual and the increasingly popular cloud environments. It has the industry’s broadest choice of IT management solutions, that help clients cut costs, reduce risk and achieve their objectives.
BMC has been partnering with firms to increase its effectiveness in cloud-based services and software-as-a-service in recent years. In December it announced it would support Cisco Network Services Manager across its cloud management product line. It also has a strategic alliance with Cisco for more than 25 cloud customers and works with them often when they unveil new products.
The same quarter, BMC also announced its second-generation service solutions that will help IT professionals avoid many of the risks associates with implementing a cloud and enhance the rewards through workshops, architecture and roadmaps.
"Our strategy for success and market leadership is proven, as evidenced by large enterprises standardizing on BMC's universal management platform, the strong demand for our cloud management and Software-as-a-Service solutions, the ongoing expansion of our strategic alliances and the number of multi-product wins across both our businesses," said Bob Beauchamp, BMC's chairman and chief executive officer, in the company’s third-quarter earnings release.
Financially, BMC has a history of strong earnings, revenue and cash flow growth. Revenue has increased each of the last 10 years to a record $2 billion in fiscal 2011, and cash flow reached $743 in 2011, compared to $613 in 2010. Earnings have also steadily increased over the last 10 years, reaching a record $456 million in fiscal 2011. Operating margins reached their highest level of the decade in the quarter ended Sept. 30, 2011, at 30.9% and its net margin was at 20.6%, lower than 22.2% in 2010, but higher than the previous years of the decade. The record earnings and stock price drop pushed BMC’s P/E to historically low levels in 2011, though higher than competitors Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM):
In its third quarter, BMC bought back 6.3 million shares for $225 million, and has $1 billion remaining in its current share repurchase program. In the last year it returned $800 million to shareholders, which is more than 100 percent of its cash flow.
Since Dalio bought the stock it has gone up approximately 8.8%.
Watson Pharmaceuticals Inc. (WPI)
Watson Pharmaceuticals stock has been on a decidedly upward trajectory in the last five years, increasing 108 percent. It became slightly cheaper in 2011, however. Dalio has been trading the stock for years but most recently he bought 314,360 shares at about $65 per share in the fourth quarter of 2011 after the stock had ventured off of its 52-week high of $73.35 it climbed to in the middle of the year.
Watson has a long-term record of profitability and growth, with an 11.9% 10-year revenue per share growth rate and 14.2% 10-year free cash flow per share growth rate.
Though the stock price declined in late 2011, the company in November reported double-digit net revenue and earnings growth. The company also announced that month an exclusive agreement with Pfizer Inc. (NYSE:PFE) to launch a generic version of Lipitor, the world’s best-selling drug in the history of pharmaceuticals. It also received approval from the FDA to start producing a generic version of the birth control drug Yaz that month, a drug with sales of $173 million in the 12 months ending Sept. 30, 2011.
In February, Watson announced a full-year 2011 net revenue increase of 29 percent and EPS increase of 39 percent, due in large part to the successful launch of a total of 189 generic products globally for the year. Currently it is using its strong cash position to invest in growth markets, Canada and European operations.
In spite of the good news and increasing its full-year revenue forecast by $100 million to about $5.4 billion, the stock is up just 0.05 percent year to date.
Dalio’s next largest purchase was Berkshire Hathaway Inc. (NYSE:BRK.B), and three new buys: BCE Inc. (NYSE:BCE), The Goldman Sachs Group Inc. (NYSE:GS), and Peabody Energy Corp. (BTU).
Dalio staking over 32 percent of his fund in emerging markets is tantamount to a forecast that emerging markets will outperform from the macro guru. His other top purchases have clear growth prospects. To see more of what Dalio bought, visit his portfolio. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Ray Dalio.