Billionaire Ray Dalio‘s Bridgewater Associates has created more wealth for its investors than any other hedge fund in history. Since the fund has generated all that wealth largely through global macro investing in currencies and fixed-income securities, its equity investments are often considered less important than its investments in bonds and currencies. Nevertheless, when compared to the equity holdings of an average hedge fund, Bridgewater’s equity investments are anything but small. At the end of 2015, Bridgewater’s U.S public equity portfolio was roughly 5% of its total assets under management (AUM), which still amounted to $7.70 billion, larger than most pure long/short equity hedge funds. Moreover, if the performance of the fund’s stock picks in the first quarter is anything to go by, the value of that portfolio has grown even larger. Analysis done by Insider Monkey of Bridgewater’s 13F holdings in companies worth at least $1 billion shows that the 254 qualifying long positions held by the fund generated a weighted average return of 8.6% during the first quarter. Considering the outperformance of the fund’s equity picks versus the broader market, in this article we are going to take a look at five of Bridgewater’s largest equity holdings entering 2016 and analyze their performance during the first quarter.
We track prominent investors and hedge funds 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 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
Let’s start with utility behemoth Exelon Corporation (NYSE:EXC), in which Bridgewater Associates increased its stake during the fourth quarter by 17% to 778,563 shares valued at $21.62 million as of December 31. While shares of Exelon Corporation (NYSE:EXC) started rallying in February, they got a major boost in March after regulators approved its acquisition of Pepco Holdings, Inc. (NYSE:POM), ending the first quarter up by over 30%. Despite the first quarter rally, most analysts who track Exelon Corporation (NYSE:EXC) feel that the stock has more upside left, as it still trades at a low forward P/E ratio of 12.82 and at a price-to-book multiple of only 1.22. Furthermore, they are also bullish on the company due to its strong balance sheet and its increasing focus on clean energy. Exelon Corporation pays a quarterly dividend of $0.31 per share, which currently translates into a respectable annual dividend yield of 3.61%. Dmitry Balyasny‘s Balysany Asset Management also increased its holding in the company during the fourth quarter, by 253% to nearly 1.26 million shares
Bridgewater Associates might be patting itself on the back for making a more than three-fold increase to its stake in Macy’s, Inc. (NYSE:M) during the fourth quarter, to 771,186 shares. Shares of Macy’s, Inc. (NYSE:M) appreciated by 27% during the first quarter and even though they have corrected by nearly 8% this month, they still boast year-to-date gains of over 16%. These gains have come despite the company reporting weaker than expected financial results for the fourth quarter of fiscal year 2016 and issuing dismal guidance for fiscal year 2017. The silver lining for investors in the company’s quarterly results was that it increased its share repurchase authorization by $1.5 billion and said that it would be focusing on monetizing the vast amount of real estate on its balance sheet. Billionaire investor David Einhorn‘s Greenlight Capital initiated a large stake in Macy’s, Inc. (NYSE:M) during the fourth quarter, purchasing almost 6.74 million shares of the company, which lifted it to being the largest shareholder of the company in our database going into 2016. In a letter issued to his investors in January, Mr. Einhorn wrote that the company could be acquired by a private equity firm and real estate investment trust (REIT) working in tandem.
Three more of Bridgewater’s top stock picks are analyzed on the following page.