Bridgewater Associates, the $165 billion hedge fund founded by Ray Dalio (Trades, Portfolio), disclosed this week its top six buys for the second quarter were iShares China Large-Cap Exchange-Traded Fund (FXI, Financial), iShares MSCI China ETF (MCHI, Financial), Stanley Black & Decker Inc. (SWK, Financial), Bank of New York Mellon Corp. (BK, Financial), Schlumberger Ltd. (SLB, Financial) and BorgWarner Inc. (BWA, Financial).
Dalio, co-chief investment officer and co-chairman of the Greenwich, Connecticut-based hedge fund, invests according to his principles, including working for what he wants, coming up with the best independent options, stress-testing his opinions, avoiding overconfidence and wrestling with reality.
As of quarter-end, Bridgewater’s equity portfolio contains 305 stocks, of which 77 represent new positions. Despite this, exchange-traded fund holdings occupy at least 79.9% of the equity portfolio.
Guru sees strong potential in China, buys two Chinese ETFs
On Aug. 6, Dalio discussed the impact of China’s growth on the world economy in a video interview with Bridgewater Senior Portfolio Strategist Jim Haskel. The Bridgewater co-CIO, who said he has visited China since 1984, detailed how conflicts can arise when a rising power attempts to challenge an existing ruling power. Dalio listed six pillars to determine the strength of an empire: technology, output, trade, military, strength of the finance center and reserve status.
Dalio underscored several key points, including “investing with the Dutch in the Dutch empire” and “investing with the British Empire during the Industrial Revolution.” The Bridgewater co-chairman also stressed the importance of diversification in an investor’s portfolio, detailing how each country and region can be “very risky” due to factors like geopolitical fragmentation and the gap between socialism and capitalism.
Additionally, the Bridgewater co-CIO described how not investing in China can be “very risky” due to its emergence: Dalio mentioned that the Chinese stock market has increased fourfold while the Chinese bond market has increased sevenfold over the past 10 years. GuruFocus’ global market valuation data further mentions that the Chinese stock market is undervalued with a total market cap to gross domestic ratio of 39%, compared to a historical mean of 142%.
Based on Dalio’s comments regarding China’s growth potential, the firm purchased 716,186 shares of the iShares China Large-Cap ETF and 500,356 shares of the iShares MSCI China ETF, dedicating 0.47% of the equity portfolio in the aggregate. Shares of the former averaged $42.36 during the quarter, while shares of the latter averaged $60.06.
Stanley Black & Decker
Bridgewater purchased 146,235 shares of Stanley Black & Decker, giving the position 0.17% weight in the equity portfolio. Shares averaged $140.85 during the quarter.
The New Britain, Connecticut-based company operates three business segments: tools and storage, security and industrial. GuruFocus ranks Stanley Black & Decker’s profitability 6 out of 10: Even though the company’s return on assets underperforms 70.67% of global competitors, its operating margin has increased approximately 1.30% per year on average over the past five years and is outperforming 64% of global competitors.
Bank of New York Mellon
Bridgewater purchased 380,468 shares of Bank of New York Mellon, giving the holding 0.13% weight in the equity portfolio.
The New York-based company provides financial services for institutions, corporations and individual investors. BNY Mellon operates in 35 countries and more than 100 markets.
GuruFocus ranks the company’s financial strength 3.2 out of 10 on several weak signs, which include a cash-to-debt ratio that underperforms 60.38% of global competitors and an equity-to-asset ratio that underperforms 93.41% of global competitors. Additionally, the website warns that BNY Mellon’s long-term debt has increased $14.7 billion over the past three years.
Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) has not released its second-quarter portfolio as the deadline is 45 days after the quarter ends. As of the March quarter, Buffett’s conglomerate owns 80,937,250 shares of BNY Mellon.
Schlumberger
Bridgewater purchased 406,990 shares of Schlumberger, giving the position 0.13% weight in the equity portfolio. Shares averaged $40.35 during the quarter.
Houston-based Schlumberger provides a wide range of oil and gas services, including reservoir characterization, drilling and production. GuruFocus ranks the company’s financial strength 5 out of 10: Although it has a solid Piotroski F-score of 6, Schlumberger also has a poor Altman Z-score of 2.14 and interest coverage just above Benjamin Graham’s safe threshold of 5.
BorgWarner
Bridgewater purchased 291,751 shares of BorgWarner, giving the holding 0.10% weight in the equity portfolio. Shares averaged $40.25 during the quarter.
The Auburn Hills, Michigan-based company operates two automotive business segments: Engine and Drivetrain. GuruFocus ranks BorgWarner’s profitability 7 out of 10 as the company’s profit margins and returns outperform over 70% of global competitors.
Disclosure: Author is long MCHI.
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