Bridgewater Associates, Ray Dalio (Trades, Portfolio)’s $165 billion hedge fund, disclosed this week its top six position boosts for fourth-quarter 2018 were iShares Core S&P 500 IVV, iShares Inc MSCI South Korea EWY, iShares Core MSCI Emerging Markets IEMG, Cimarex Energy Co. XEC, Alliance Data Systems Corp. ADS and International Paper Co. IP.
The Bridgewater co-chairman and co-chief investment officer follows several life principles, which include formulating independent opinions and stress-testing them, cautioning about overconfidence and wrestling with reality. Based on current portfolio statistics, the Greenwich, Connecticut-based hedge fund’s top holdings include exchange-traded funds like Vanguard FTSE Emerging Markets VWO and the SPDR S&P 500 SPY.
iShares Core S&P 500
Bridgewater added 1,400,912 shares of iShares Core S&P 500 for an average price of $270.59 per share, increasing the equity portfolio 3.23%.
According to iShares’ website, the iShares Core S&P 500 ETF seeks to track the investment results of the Standard & Poor’s 500 index, an index composed of the largest 500 U.S. companies in terms of market cap.
Two key valuations for the U.S. stock market include Berkshire Hathaway Inc. BRK.ABRK.B CEO Warren Buffett (Trades, Portfolio)’s favorite indicator and Robert Shiller’s cyclically-adjusted price-earnings ratio. As of Thursday, Valentine’s Day, the Buffett indicator stands at 137.8% while the Shiller price-earnings ratio is 30.2. Both ratios suggest a significantly overvalued market: the U.S. market is expected to return -1.5% per year over the next eight years according to Buffett’s valuation and -1.9% per year over the next eight years according to Shiller’s valuation.
iShares MSCI South Korea
The fund added 2,826,180 shares of iShares MSCI South Korea for an average price of $60.29 per share, increasing the equity portfolio 1.52%.
The iShares MSCI South Korea ETF seeks to track the investment results of an index composed of South Korean investments. Based on current market valuations, the expected annual return of the South Korean market is 8.5%, including dividends and economic growth.
iShares Core MSCI Emerging Markets
Bridgewater added 3,026,243 shares of iShares Core MSCI Emerging Markets for an average price of $48.30 per share, increasing the equity portfolio 1.31%.
The iShares Core MSCI Emerging Markets ETF seeks to track the investment results of an index composed of large-cap, mid-cap and small-cap securities from emerging markets. According to the global market valuations page, emerging markets like China, Russia and India have double-digit expected annual returns.
Cimarex
Bridgewater added 1,032,740 shares of Cimarex for an average price of $81.52 per share, increasing the holding 1,413.65%. The transaction increased the equity portfolio 0.58%.
The Denver-based company’s primary activities include oil and gas exploration and production, focusing on the Permian Basin, the Cana-Woodford Shale and the Meramec region. GuruFocus ranks the company’s financial strength and profitability 6 out of 10: while it has a strong Piotroski F-score of 8, Cimarex’s revenue and gross profit margins have declined over the past five years.
Gurus with large holdings in Cimarex include Diamond Hill Capital (Trades, Portfolio) and Charles de Vaulx (Trades, Portfolio).
Alliance Data Systems
The fund added 399,419 shares of Alliance Data Systems for an average price of $194.93 per share, increasing the holding 402.77%. The transaction increased the equity portfolio 0.54%.
The Plano, Texas-based company provides marketing, loyalty and private-label credit card services. GuruFocus ranks the company’s profitability 10 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8 and returns on equity that are outperforming 97% of global competitors. Additionally, the company’s business predictability ranks a perfect five stars on strong and consistent revenue and earnings growth over the past 10 years.
Other gurus riding Alliance Data’s strong growth momentum include Jerome Dodson (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Glenn Greenberg (Trades, Portfolio).
International Paper
The fund added 1,311,3,06 shares of International Paper for an average price of $44.18 per share, increasing the position 778.06%. The transaction increased the equity portfolio 0.49%.
The Memphis, Tennessee-based company distributes packaging products through three business segments: industrial packaging, printing papers and global cellulose fibers. GuruFocus ranks the company’s profitability 7 out of 10 on several positive signs, which include expanding profit margins and a strong Piotroski F-score of 7. Despite this, International Paper’s financial strength ranks a modest 5 out of 10 primarily due to debt ratios underperforming 91% of global competitors.
Disclosure: No positions.
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