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The Big Bets of the World’s Largest Hedge Fund Heading Into Fourth Quarter

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Ray Dalio‘s Bridgewater Associates, which is the world’s largest hedge fund was blamed for the market volatility in August this year owing to its renowned risk parity portfolio strategy. However, the firm defended itself and shed some more light over risk parity in an attempt to exonerate itself. Bridgewater’s $80 billion All Weather Fund, which employs risk parity fell by 4.2% in August and was down by 3.76% year-to-date at the start of September. Today, we are more interested in the fund’s top equity picks while it headed into the fourth quarter, which included Centurylink Inc (NYSE:CTL), The Coca-Cola Co (NYSE:KO), ENSCO PLC (NYSE:ESV), Apple Inc. (NASDAQ:AAPL), and PepsiCo, Inc. (NYSE:PEP).


We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last 3 years (see the details here).

Ray Dalio
Ray Dalio
Bridgewater Associates

 #5 PepsiCo, Inc. (NYSE:PEP)

Shares held (as of September 30): 290,403

Total Value (as of September 30): $27.39 million

Percent of Portfolio (as of September 30): 0.37%

During the September quarter, Bridgewater added some 229,000 shares to its PepsiCo, Inc. (NYSE:PEP) holding. So far this year, the beverage giant’s stock price has risen by a modest 4.19%. The business climate for the company has been toughening especially given that U.S. soda volumes have been falling for 10 straight years as consumers turn to bottled water and other healthier alternatives. However, the company is trying to capture that segment as well, by its own bottled water and snacks segment, while expanding into other more receptive markets. PepsiCo managed to beat both the top and bottom line estimates in its financial results for the third quarter. Donald Yacktman‘s Yacktman Asset Management is the one of the largest stockholders of PepsiCo, Inc. (NYSE:PEP) within our database as it owns some 17.80 million shares, according to its 13F filing for the third quarter.


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#4 Apple Inc. (NASDAQ:AAPL)

Shares held (as of September 30): 274,852

Total Value (as of September 30): $30.32 million

Percent of Portfolio (as of September 30): 0.41%

Bridgewater slashed its Apple Inc. (NASDAQ:AAPL) holding almost by a half during the July-September quarter. Recently, the technology company has been rumored to be in talks with banks regarding a potential mobile P2P payment service. For its fourth fiscal quarter ended in September, the world’s largest company in terms of market cap delivered EPS of $1.96, beating estimates by $0.08, while revenues of $51.5 billion also came in $380 million above expectations. Activist investor Carl Icahn‘s Icahn Capital LP held 52.76 million shares of Apple Inc. (NASDAQ:AAPL) at the end of the second quarter.


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