Hedge fund legend Ray Dalio plays down the importance of a potential interest rate hike by the Federal Reserve in a recent interview with Bloomberg’s Tom Keen and Michael McKee. Instead, Dalio is worried about the effects of the next downturn and how the Fed is going to respond to that, as the impact of quantitative easing is weaker with every stage. He believes the central bank should not increase the interest rates and is convinced that the Fed will eventually return to quantitative easing. The Fed is set to issue its latest decision on interest rates later today, following a two-day policy meeting.
With a public equity portfolio valued at more than $10 billion, Ray Dalio’s Bridgewater Associates is one of the biggest hedge funds in the world. A stock market maestro, Dalio bought his first shares at the age of 12, using the money he made as a caddy. He founded Bridgewater in 1973 following short spells at Dominick & Dominick LLC and Shearson Hayden Stone. In 2011, Dalio stepped down from his position as CEO of Bridgewater and has assumed a “mentor” role as he continues to serve as co-CIO, working together with Robert Prince and Greg Jensen. The biggest chunk of Bridgewater’s funds is locked in equity index funds, although these positions were slightly reduced during the second quarter of 2015. The fund’s equity plays are well spread among a number of sectors, with several technology and energy stocks among the top positions.
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Comparing the current state of the economy with the situation prior to the 2008 recession, Dalio hints that the Fed is wrong to focus their attention only on certain domestic economic indicators and states that they are putting too much emphasis on the short-term debt cycle and not enough on the long-term cycle. With U.S corporate coffers flush with cash, a status reflected by the large number of share buyback programs and M&A activity, and a global environment screaming for lower borrowing costs, Dalio believes a large increase to the interest rate in the near future is highly unlikely.
In his interview fwith Bloomberg, Dalio was asked to comment on Bridgewater’s performance so far this year. While his “Pure Alpha” hedge fund strategy, which accounts for the biggest share of his portfolio, is up by roughly 6%, the long term “All Weather” strategy has managed the same performance, only in the wrong direction. The setback has not generated sleepless nights for Dalio, who believes such a modest contraction is tolerable. August “was a lousy month” for Bridgewater, as the markets were thrown into turmoil amid mounting fears of a Chinese economic slowdown. He remains upbeat and is sure “China is going to be just fine“, albeit weaker.
In its latest 13F filing, Bridgewater Associates revealed that Apple Inc. (NASDAQ:AAPL) was its biggest equity position, though reduced by 28% during the second quarter to 531,497 shares valued at more than $66.6 million. Bridgewater also revealed a significant, 115% increase to its holding of Suncor Energy Inc. (USA)(NYSE:SU), to 849,800 shares. Dalio & Co. also boosted their investment in Centurylink Inc (NYSE:CTL) by 125% to amass 685,511 shares valued at more than $20 million.
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