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Ray Dalio Is Investing in International Equities Focusing on Mid and Large Cap Companies

February 13, 2014 | About:

On Dec. 31, Ray Dalio (Trades, Portfolio), the founder and Chief Investment Officer of the investment firm Bridgewater Associates, added iSharesMSCI Emerging Markets (EEM) at an average price of $41.87, and is currently holding 77.422.430 shares of the ETF.

Exchange Traded Fund (ETF)

An ETF is a special type of fund that invests in a portfolio of stocks or bonds. The aim is to mimic the performance of a specified index. As well as the shares, they are traded in the secondary market at any time (market hours) and investors can sell short.

The advantages of this investment vehicle are that they provide an efficient method of diversification because investors gain exposure to an index or a particular sector. Secondly, investors know the composition of the fund at all times. Moreover, as they are a passive managed fund, they have good operating expense ratios.

The iSharesMSCI Emerging Markets ETF

This fund is one of BlackRock´s iShares ETFs. It is a passively managed ETF designed to provide a broad exposure to the equity markets in the emerging economies such as: China, South Korea, Taiwan, Brazil, South Africa, India, Russian Federation, Mexico and Malasya. So the ETF measures the performance of stocks traded in the emerging market stock exchange. It manages an asset base of $41.5 billion and the top ten Holdings (Samsung Electronics, Taiwan Semiconductor, Tencent Holdings, China Mobile, China Construction Bank, Ind & Comm BK of China,Gazprom, Naspers LTD-N, America Movil SAB DE C-SER, MTN Group LTD.) accounts for 16.97%.

Returns

China, South Korea, Brazil and Taiwan account for about 60% of this fund's portfolio and therefore dominate the fund's performance. The ETF has returned an annual rate of 12.8% over the past 10 years as of Sept. 30, 2013, outpacing the S&P 500's 7.6%.

Fund Allocation

In terms of sector allocation:

Basic Materials

8,60%

Communications

12,06%

Consumer Cyclical

8,84%

Consumer Non-cyclical

10,03%

Diversified

2,21%

Energy

10,27%

Financial

25,74%

Industrial

7,29%

Technology

11,20%

Utilities

3,42%

In terms of geographical allocation:

Africa / Middle East

8,60%

Asia Pacific

12,06%

Central Asia

8,84%

Eastern Europe

10,03%

North America

2,21%

South & Central America

10,27%

Western Europe

25,74%

Risk

We see three possible risks for this investment. Firstly, as the fund does not hedge its foreign-currency exposure, a rise in the U.S. dollar could reduce the returns of this fund. Secondly, a sudden reversal in cash inflows in emerging economies can result in short-term volatility. Lastly, many of the large caps are state-controlled firms, which sometimes political goals influence in an important way.

Final Comment

Although the fund looks for diversification through exposure to different countries and commonly it is seen as a potential for higher returns, as investor we have to take into consideration the several risks that we mentioned previously.

Emerging markets are operating under less-favorable macroeconomic and external conditions, so for those investors seeking to invest their money in an ETF with exposure to large cap equities, this ETF is a good option because it offers diversification and has a relative low expense ratio (0.67%) compared to the average charged by similar funds.

Hedge fund managers have also been active in the company. Gurus like Charles Brandes (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), John Burbank (Trades, Portfolio) and Jim Simons (Trades, Portfolio) have invested in it.

Disclosure: Damian Illia holds no position in any stocks mentioned.

About the author:

Damian Illia
A fundamental analyst at Lonetreeanalytics.com constantly looking for value and income investments.

Visit Damian Illia's Website


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