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Billionaire Ray Dalio’s Top Picks Outshined By His Fund’s Performance

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Ray Dalio‘s Bridgewater Associates might not have fared so well in terms of its long equity positions, which returned 0.6% in the first quarter according to our returns metric, which is based on the performance of the fund’s 329 long positions at the beginning of the quarter, in companies with a market cap exceeding $1 billion. However, Bridgewater’s macro strategy fund, Bridgewater Pure Alpha II managed to return 14.5% over the quarter. Dalio’s bets on macroeconomic trends which were based on a strengthening dollar and a delay in the Fed’s interest rate hike paid off well for the world’s largest hedge fund firm, which has nearly $169 billion in assets under management.

BRIDGEWATER ASSOCIATES

Dalio’s flagship fund, the All Weather Fund, which was comprised of nearly $80 billion in assets in 2014, gained 8.6% net of fees last year while the average hedge fund returns hovered around 2.5%. Returns from the big Pure Alpha fund stood at 3.6% net of fees for 2014, which was a remarkable feat in itself since many macro funds struggled during that year. The market value of Bridgewater’s equity portfolio stood at $12.53 billion towards the end of 2014 with ETFs and index funds comprising more than 50% of this value. This is also the reason why, according to our methodology, the returns of Bridgewater’s stock holdings were closer to the S&P 500 ETF (SPY)’s 0.9% returns during the first quarter. Among the fund’s top stock holdings were Apple Inc. (NASDAQ:AAPL), Gilead Sciences, Inc. (NASDAQ:GILD), Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC) and International Business Machines Corp. (NYSE:IBM).

Most investors don’t have enough time to do in-depth analysis on each stock they want to include in their portfolios. Professional investors like Ray Dalio, spend weeks conducting due diligence on each company and spend millions obtaining information and paying the salaries of Ivy League-educated analysts. That’s why we have always believed that imitating the stock picks of hedge funds and billionaires is an excellent short cut we can take. It doesn’t cost an arm and a leg either. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of hedge funds performed better than the market and much better than their large-cap picks. A portfolio of the 15 most popular small-caps among several hedge funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012. The exceptional results of this strategy got even better in the forward tests we have been conducting since the end of August 2012. The most popular small-cap stocks among hedge funds beat the market by more than 79 percentage points since then (see the details here).

Despite being one of Dalio’s top picks, Apple Inc. (NASDAQ:AAPL) constituted only 0.23% of the fund’s portfolio value. The stake stood at 259,500 shares valued at $28.64 million. Apple’s stock gained the most among the above list of companies, by 13.17% over the quarter. The tech company’s new gadget, Apple Watch has been met with mixed expectations among analysts, with some like Raymond James cutting their rating of the company to ‘Market Perform’ from ‘Outperform’, while others including Canaccord Genuity have reiterated their ‘Buy’ rating for Apple Inc. (NASDAQ:AAPL), with that analyst raising its price target to $150 from $145. Among over 700 hedge funds that we track, Carl Icahn’s Icahn Capital LP held the highest stake in the $734.15 billion company.

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