Billionaire Ray Dalio’s Stock Picks Shone in Q1, Outperforming the Broader Market

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.

Moving on, PepsiCo, Inc. (NYSE:PEP) was the only stock among Bridgewater’s 13 largest equity holdings in which it reduced its stake during the fourth quarter, by 3% to 282,641 shares. After ending the first quarter with gains of 3.3%, PepsiCo, Inc. (NYSE:PEP) has scaled to new heights this month, recently making its lifetime high of $103.99. The company is expected to report its first quarter numbers on April 20 and the consensus among analysts is for it to report EPS of $0.81 on revenue of $11.85 billion, which would be slightly lower than the EPS of $0.83 on revenue of $12.22 billion that it reported for the same quarter a year earlier. On March 30, PepsiCo, Inc. (NYSE:PEP) announced that three of its divisions – North America Beverages, Frito-Lay North America, and Quaker Foods North America – will now be headed by Albert P. Carey. Due to this announcement, speculation is rife on the Street that Mr. Carey is likely to succeed PepsiCo, Inc. (NYSE:PEP)’s current CEO, Indra Nooyi, in the future. Billionaire Mario Gabelli‘s GAMCO Investors also reduced its stake in the beverage giant marginally during the fourth quarter, by 2% to 479,823 shares.

Canadian communications giant BCE Inc. (USA) (NYSE:BCE) is another major holding of Bridgewater Associates that is performing well this year. During the fourth quarter, the fund increased its stake in the company by 94% to 772,300 shares worth $29.72 million as of December 31. BCE Inc. (USA) (NYSE:BCE)’s stock has been on a consistent uptrend since mid-January, ending the first quarter up by 19.3%. The company recently increased its annual dividend payments by 5% to $2.09 per share, which translates into an attractive dividend yield of 4.6%. Last November, BCE Inc. acquired the sole rights to distribute HBO content in Canada, which analysts feel will boost the company’s market share even further in the coming quarters. They are also impressed by the consistent growth in ARPU (average revenue per user) the company has shown in the past few quarters. On February 5, analysts at Canaccord Genuity reiterated their ‘Buy’ rating on the stock, while upping their price target on it to $46.62 from $45.09. A notable investor that initiated a stake in BCE Inc. (USA) (NYSE:BCE) during the fourth quarter was billionaire Israel Englander‘s Millennium Management, which bought 123,261 shares of the company.

Owing to Bridgewater Associates increasing its stake in the company by 20% to 327,452 shares during the fourth quarter, Apple Inc. (NASDAQ:AAPL) became the top stock pick of the fund going into 2016. The company unveiled some major products last month, including a 4.5-inch smartphone starting at $399, which was one of the reasons why its stock performed well and ended the first quarter with gains of 4.1%. Other reasons for the stock to have finally rise out of sub-$100 levels include an improving outlook among analysts for the company’s second quarter of fiscal year 2016 and the shift of investors’ focus from the iPhone 6s to the upcoming iPhone 7. On April 6, Needham & Company analyst Laura Martin initiated coverage on Apple Inc. (NASDAQ:AAPL)’s stock with a ‘Strong-Buy’ rating and $150 price target. In her note, Ms. Martin wrote:

“Our survey research concludes that iOS platform churn is only about 12% annually, suggesting fewer competitive pressures, higher pricing power, more predictable revenue streams, and a halo effect that drives sister-device sales and higher ancillary revenue than AAPL’s current share price implies.”

Chase Coleman‘s Tiger Global Management LLC was one of the hedge funds tracked by Insider Monkey that initiated a stake in Apple Inc. (NASDAQ:AAPL) during the fourth quarter, buying 10.6 million shares of the tech company.

Disclosure: None