2015 was the worst year for the hedge fund industry since the 2008 financial crisis. While the broader market remained largely flat, several hedge funds suffered high double-digit losses during the period, including prominent names like Pershing Square and Greenlight Capital as a number of hedge fund hotels (stocks very popular among hedge funds) had horrendous years. Industry titans like billionaire Ray Dalio of Bridgewater Associates weren’t able to buck the trend either. Our analysis shows that the long positions held by the fund in companies with market capitalizations of at least $1 billion produced a weighted average returns loss of 10.7% during 2015, based on the size of those holdings at the beginning of each quarter. It seems Bridgewater Associates realized during the fourth quarter that it would be ending 2015 on a dismal note and that to bounce back in 2016 it would need to make a number of changes to its portfolio, which its latest filing shows as being the case. According to the filing, Bridgewater’s equity portfolio experienced 100% turnover during the fourth quarter and by the end of that period financial stocks accounted for 78% of the value of the portfolio (this is mostly from investments in ETFs however, and not actual finance stocks). In this article, we will be going through Bridgewater Associates’ top five stock picks going into 2016.
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 (see the details here).
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#5 VMware, Inc. (NYSE:VMW)
– Shares Owned by Bridgewater Associates (as of December 31): 517,061
– Value of Holding (as of December 31): $29.25 million
Bridgewater Associates made a nearly ten-fold increase to its stake in VMware, Inc. (NYSE:VMW) during the fourth quarter. Shares of the virtualization infrastructure solutions provider have fallen by over 40% since last October, when Dell Inc. announced that it would be buying EMC Corporation (NYSE:EMC) in a $67 billion deal. Since EMC Corporation (NYSE:EMC) owns 83% of the outstanding shares of VMware, Inc. (NYSE:VMW), Dell Inc. categorically clarified in its announcement that it will let VMware, Inc. remain an independent, publicly-traded company. However, Dell Inc. recently submitted a regulatory filing in which it disclosed to investors that the final price of the EMC Corporation deal could drop by $10 billion due to the massive drop in VMware, Inc.’s stock over the past few months. According to recent reports, VMware, Inc. is planning to layoff 5% of its 18,000 employees ahead of the Dell/EMC merger. Matt Sirovich and Jeremy Mindich‘s Scopia Capital also increased its stake in VMware, Inc. during the fourth quarter; it held nearly 2.56 million shares of the company as of December 31.
#4 BCE Inc. (USA) (NYSE:BCE)
– Shares Owned by Bridgewater Associates (as of December 31): 772,300
– Value of Holding (as of December 31): $29.72 million
Amid a 5.7% drop in BCE Inc. (USA)(NYSE:BCE)’s stock during the fourth quarter, Bridgewater Associates increased its stake in the Canadian communications major by 93%. BCE Inc. (USA)(NYSE:BCE) is among the few stocks that’s trading in the green this year, up by 8.78% year-to-date, so the move has paid off so far. Most of the rally the stock has seen this year came in anticipation of the company’s fourth quarter results. On February 4, BCE Inc. reported EPS of $0.72 on revenue of $5.60 billion for the quarter slightly missing analysts’ expectations of EPS of $0.72 on revenue of $5.63 billion. Despite the recent run-up in BCE Inc.’s stock, it still sports an attractive annual dividend yield of 4.74%. On February 6, analysts at RBC Capital reiterated their ‘Outperform’ rating and $58 price target on the stock. Cliff Asness‘ AQR Capital Management reduced its holding in the company by 7% to 1.94 million shares during the fourth quarter.