Ray Dalio (Trades, Portfolio) founded Bridgewater Associates, a Connecticut-based hedge fund that currently has $165 billion in assets under management (AUM). During fourth-quarter 2016, Dalio increased his positions in four exchange-traded funds: Vanguard FTSE Emerging Markets (ARCA:VWO), iShares Core MSCI Emerging Markets (ARCA:IEMG), iShares MSCI South Korea Capped Index Fund (ARCA:EWY) and iShares MSCI Brazil Capped Index Fund (ARCA:EWZ). The Bridgewater hedge fund manager also reduced his positions in the SPDR S&P 500 (ARCA:SPY) and the iShares MSCI Emerging Index Fund (ARCA:EEM). With these transactions, Dalio increased his portfolio holdings by about 4.7% in the aggregate.
Vanguard FTSE Emerging Markets ETF
Dalio purchased 11,789,340 shares of VWO at an average price of $36.59, expanding his portfolio 4.01%.
According to the fund website, the Vanguard FTSE Emerging Markets ETF closely tracks the FTSE Emerging All Cap China A Inclusion index by investing in companies trading in China, Brazil, Taiwan and South Africa. Morningstar, our data vendor, gave this ETF a bronze rating on Dec. 15, 2016, implying the Vanguard FTSE fund has potential to outperform its respective benchmark in the short term. Most of the emerging markets are undervalued based on global stock valuations, including China and Brazil. As of Feb. 13, 2017, the annualized projected return for the China stock market and the Brazil stock market is 30.2% and 14.9% respectively.
iShares Core MSCI Emerging Markets ETF
The Bridgewater fund manager increased his position in IEMG 333.03%, purchasing 4,393,736 shares at an average price of $43.80. With this transaction, Dalio increased his portfolio 1.77%.
Like the Vanguard Emerging Markets ETF, the iShares Core MSCI Emerging Markets also invests primarily in companies trading in Asian companies. As of Feb. 10, the ETF has several Asian technology companies among its top 10 holdings: Samsung Electronics Ltd. (XKRX:005930, Financial), Alibaba Group Holding Co. (BABA, Financial) and Baidu Inc. (BIDU, Financial). As they have high profitability and a GuruFocus business predictability rank of at least three stars, these companies offer strong growth potential for early 2017.
- Samsung: Financial strength rank 8/10, Profitability rank 8/10 and Predictability rank 3/5
- Alibaba: Financial strength rank 7/10, Profitability rank 8/10 and Predictability rank 3/5
- Baidu: Financial strength rank 7/10, Profitability rank 8/10 and Predictability rank 4/5
As Alibaba and Baidu offer good growth potential, Chris Davis (Trades, Portfolio) invested in 366,132 shares of the former and 9,110 shares of the latter during fourth-quarter 2016. Alibaba’s stock price averaged $96.28 while Baidu’s stock price averaged $170.19.
iShares MSCI South Korea Capped Index Fund / iShares MSCI Brazil Capped Index Fund
Dalio purchased 1,754,589 shares of the iShares South Korea Capped ETF at an average price of $54.58. With this transaction, the fund manager increased his portfolio 0.89%.
As the name suggests, the South Korea Capped ETF focuses primarily on South Korean equities, including Samsung and Hyundai Motor Co. (XKRX:005380, Financial). Based on global market valuations, the South Korean stock market is projected to return approximately 9.8% per year.
Dalio also purchased 722,400 shares of the iShares Brazil Capped ETF at an average price of $34.30. With this transaction, the fund manager increased his portfolio 0.23%.
Like the iShares South Korea Capped ETF, the iShares Brazil Capped ETF focuses on large-cap equities within a single country. The Brazil ETF contains companies like Ambev SA (BSP:ABEV3) (NYSE:ABEV) and Vale SA (BSP:VALE3) (NYSE:VALE). Ambev has a profitability rank of 8, including profit margins and returns outperforming over 90% of global beverage companies. Vale, on the other hand, has declining operating margins and returns on equity.
Standard & Poor’s 500 index ETF
On the sell side, Dalio trimmed 7.25% of his stake in the S&P 500 ETF, reducing his portfolio by about 1.68%. The S&P 500 ETF averaged $218.60 during fourth-quarter 2016.
Unlike the emerging markets, the U.S. stock market is significantly overvalued, with a Warren Buffett (Trades, Portfolio) indicator of 129.1% and a Shiller price-earnings ratio of 29.0. These valuations are moderately higher than the market valuations as of Feb. 2, with the former up 3% and the latter up 0.43%. Buffett’s indicator suggests an annual return of -0.7% while Shiller’s valuation ratio implies an annual return of -1.5%.
iShares MSCI Emerging Markets ETF
Dalio trimmed 1.87% of his stake in the iShares Emerging Markets ETF, selling 1,328,685 shares at an average price of $36.03. With this transaction, the fund manager reduced his portfolio by about 0.49%.
Unlike the iShares Core Emerging Markets ETF, the “simple” Emerging Markets ETF excludes exposure to the small-cap companies and is generally traded at a premium relative to the Core Emerging Markets ETF. According to the iShares website, IEMG offers about the same iShares quality as does EEM at about 0.14% of the price.
Conclusions and see also
As of Dec. 31, 2016, the Bridgewater hedge fund manager has the largest ownership in the Vanguard FTSE fund with 92,202,194 shares. Dalio also owns 69,668,055 shares of the iShares Emerging Index Fund and 5,713,056 shares of the iShares Core MSCI Emerging Markets ETF, both also representing the largest ownership among gurus.
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Disclosure: No positions in the stocks and ETFs mentioned.
