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James Li
James Li
Articles (1543) 

Top 3rd-Quarter Trades of Ray Dalio's Bridgewater

The $165 billion hedge fund trims S&P 500 ETF holdings and buys defensive stocks

Bridgewater Associates, the $165 billion hedge fund founded by Ray Dalio (Trades, Portfolio), disclosed this week that its top four trades during the third quarter featured position reductions in the SPDR S&P 500 Trust (SPY) and iShares Core S&P 500 exchange-traded funds (IVV) and new holdings in consumer defensive giants like Walmart Inc. (NYSE:WMT) and Proctor & Gamble Co. (NYSE:PG).

The Greenwich, Connecticut-based firm invests based on Dalio's key principles, which include working for what the guru wanted, coming up with strong independent opinions and stress-testing the opinions with smart people.

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Dalio said in Chapter 7 of his "Changing World Order" series that destiny and its "Big Cycle manifestations" have lead the U.S. to "go through its mutually reinforcing Big Cycles of successes," resulting in "weakening" in several areas. Regarding the trade war between the U.S. and China, the co-chief investment officer of Bridgewater discussed that the war can deteriorate if the companies cut each other off from essential imports. Dalio noted that the two companies are "shifting to more domestic production."

Firm trims holdings in two S&P 500 ETFs

As of September quarter-end, Bridgewater's $8.31 billion equity portfolio contains 431 stocks, with 130 new holdings and a quarterly turnover ratio of 33.19%. ETFs occupy approximately 55% of the equity portfolio, followed by a 15.13% weight in consumer defensive stocks and a 13.26% weight in consumer cyclical stocks.

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The firm sold 1,076,174 shares of SPDR S&P 500 Trust, trimming the position 21.33% and the equity portfolio 5.57%.

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Bridgewater also sold 1,051,128 shares of iShares Core S&P 500, trimming the position 63.08% and the equity portfolio 5.46%.

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According to the State Street Global Advisors and iShares websites, the two funds both seek to track the performance of the Standard & Poor's 500 Index. The index closed on Friday at a new all-time record close of 3,585.15, up 1.36% from Thursday's close of 3,537.01. CNBC said that markets climbed on the back of investors betting again on stocks that could benefit from a potentially effective vaccine and economic recovery next year.

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The U.S. stock market remains significantly overvalued based on both Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio)'s market indicator for the Wilshire 5000 index and Robert Shiller's cyclically-adjusted price-earnings ratio for the S&P 500.

Walmart

Bridgewater purchased 1,394,187 shares of Walmart, giving the stake 2.35% weight in the equity portfolio. Shares averaged $133.31 during the third quarter; the stock is highly overvalued based on its price-to-GF Value ratio of 1.30.

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GuruFocus ranks the Bentonville, Arkansas-based defensive retailer's profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a 3.5-star business predictability rank and a return on assets that outperforms over 84% of global competitors.

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Gurus with large holdings in Walmart include Bill Gates (Trades, Portfolio)' foundation trust and Ken Fisher (Trades, Portfolio)'s Fisher Investments.

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Proctor & Gamble

Bridgewater purchased 1,225,476 shares of Proctor & Gamble, giving the holding 2.05% weight in the equity portfolio. Shares averaged $132.66 during the third quarter.

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GuruFocus ranks the Cincinnati-based consumer product manufacturer's profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 and an operating margin that has increased approximately 2.40% per year on average over the past five years and is outperforming approximately 95% of global competitors.

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See also

Bridgewater increased its weight in consumer defensive stocks by over 14% from the second-quarter weight of 1.34%.

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The firm's other major buys in the consumer defensive sector included Coca-Cola Co. (NYSE:KO), Johnson & Johnson (NYSE:JNJ), PepsiCo Inc. (NASDAQ:PEP) and Costco Wholesale Corp. (NASDAQ:COST).

Disclosure: Long Coca-Cola, Proctor & Gamble and Costco.

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