Of the $130 billion that Bridgewater manages, $7.44 billion lies in its equity portfolio. Of its entire portfolio, 82.44 percent is invested in ETFs: 35.4 percent allocated to the S&P 500 (SPY), 27.7% to the Vanguard MSCI Emerging Markets ETF (VWO), 18.5% to the iShares MSCI Emerging Markets Index ETF (EEM) and 0.84 percent to the iShares MSCI Brazil Index ETF (EWZ).
In the third quarter, he increased the Vanguard MSCI Emerging Markets ETF by 27.01% and the iShares MSCI Emerging Markets Index ETF by 4.97%. He also added 0.8% to the S&P 500 ETF. The Brazil Index ETF he decreased 42.43%.
None of the other 233 stocks in the portfolio comprise more than 1% of it. He explained why in a September interview with Foreign Affairs:
“The age of big returns is over. Of asset classes in general. And that’s true of bonds. That’s true of stocks. For structural reasons. And that has to do with when interest rates go down, it causes stocks and bonds to go down. And when interest rates go down to zero, there is not much more room for those assets to benefit from declining interest rates. So when we look at high returns of stocks, what we had is an expansion in P/Es which are yields coming down. And that is all over. For a relatively long time. There are going to be ups and downs. But what produces the high returns is structurally no longer there,” he said.
He also summarized his take on emerging markets in the same interview: “Ultimately the economics of a country is very similar to the economics of the individuals that make up that country. So the question is who has the surpluses and are they adding to those surpluses. Of course politics enters into it. But the problems that they can’t control are when external countries don’t lend them money. Emerging countries are running the surpluses and they are the creditors. So taken one by one as we go through them, their circumstances are very different. But generally speaking emerging countries are in better financial condition than the developed countries,” he said.
Dalio’s ownership of shares in his largest ETF, the Vanguard MSCI Emerging Markets ETF, dates back to the fourth quarter of 2009, and he has made numerous additions to the holding since then. The third quarter of 2012, however, marked his largest increase, with almost 10.5 million her shares added at a price of $41 each on average.
Year to date, the fund gained 10.3%. Its website boasts a one-year performance of 17.9%, and 9.31% on average since inception in 1995.
The ETF is also characterized by 898 stocks included, with a median market cap of $17.1 billion, P/E ratio of 12.9x and earnings growth rate of 14.4%. As of Oct. 31, at the top of the fund are stocks of Samsung Electronics Co. Ltd. (SSNHY), Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), Petroleo Brasileiro SA (NYSE:PBR), China Mobile Ltd. (NYSE:CHL) and Vale SA (NYSE:VALE). The top countries represented are China, Korea, Brazil, Taiwan and South Africa.
In a September study by the International Monetary Fund (IMF), results showed that emerging economy growth has been occurring for several decades, but “their downturns and recoveries have become shallower and shorter,” with more time spent in expansion. The last decade was actually the first in which emerging markets expanded longer and had shallower downturns than advanced economies.
The reason? The study found that it mostly had to do with emerging markets learning to construct better policy. Many have targeted inflation and introduced flexible exchange rates and ‘countercyclical’ monetary policies, stimulating the economy when weak and pulling back when overheating.
“Better policies and greater policy space account for three-fifths of the increased duration of in these economies’ expansions,” said Abdul Abiad, who headed the research team, “and less frequent shocks accounts for the remainder.”
The report warned that downturns and shocks in the Europe and U.S. still had significant impact on emerging economies.
Brazil appealed less to Dalio, though in the first nine months of 2011 it attracted a record $50.4 billion in foreign investment, a 123% increase from the same period the previous year. The country attributed the record investment inflows to “the excellent fundamentals of the Brazilian economy.” In the third quarter, the country showed that growth was lower than expected.
The country’s GDP expanded 0.60 percent from the previous quarter and 0.9% from the third quarter of 2011. The best performing industries were agriculture and livestock farming, each up 2.5%, according to the IBGE.
Year to date, the iShares MSCI Brazil Index ETF is off 10.3%. Its top holdings are Petrobras (NYSE:PBR), the 54% government-owned oil company, and Vale SA (NYSE:VALE), the world’s second-largest mining company.
Shares of Petrobras have shed 27.4% year to date; Vale fell almost 20%.
In the third quarter, Petrobras earned 5.6 billion reais, up from a loss of 1.4 billion reais in the second quarter, driven by an upward adjustment of domestic gasoline and diesel prices in June and July 2012. The results reflected a decline from 6.3 billion reais in the same quarter the previous year.
Barrels of total domestic and international oil and natural gas production fell to 2,523 mbbl/d from 2,579 mbbl/d in the second quarter and 2,581 mbbl/d in the third quarter of 2011. The declines in crude oil production were mainly due to maintenance stoppages.
Vale’s third quarter gross operating revenues were $11 billion, down 9.8% sequentially due to lower sales prices, and down 34.5% year over year. Net earnings were $1.7 billion, down 37.3% sequentially and 66.2% year over year.
The company said in its third quarter release that its soft financial performance “reflected the challenges stemming from the downward price volatility typically created by a global economic deceleration, which combines the effects of a weaker demand for minerals and metals with negative expectations.”
The remainder of Ray Dalio’s portfolio is primarily stocks of companies, which you can see here. Also check out the undervalued stocks, top growth companies, and high yield stocks of Ray Dalio.