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.
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.
Gilead Sciences, Inc. (NASDAQ:GILD) rose modestly by 4.11% during Q1. Bridgewater held some 537,300 shares valued at $50.65 million in its most valuable non-index stock holding. The company’s drugs, Solvadi and Harvoni are market leaders in the treatment of the Hepatitis C virus (HCV). The health care company also has a strong portfolio of drugs for treating HIV and just this month it submitted a New Drug Application (NDA) to the FDA in this regard pertaining to the usage of a combination of its drugs, emtricitabine and tenofovir alafenamide (TAF), for the treatment of HIV among adults and pediatric patients older than 12 years of age. Cliff Asness‘ AQR Capital Management held the highest stake in the company among the funds that we track.
Microsoft Corporation (NASDAQ:MSFT) was the second worst performer during Q1 among these picks and depreciated by 11.84%. The falling revenues from Windows have been hurting the tech company, but new products like HoloLens, cloud, and the new Surface 3 tablet, which is based on Intel’s Cherry Trail Processor provide a promising new direction for the company in the future. Jeffrey Ubben’s Valueact Capital is also banking on Microsoft Corporation (NASDAQ:MSFT)’s turnaround as it held about 74.24 million shares valued at $3.45 billion at the end of the fourth quarter.
Intel Corporation (NASDAQ:INTC) slumped the most among these top picks, by 13.21% over the quarter. The ailing tech company was also one of the biggest first quarter mega-cap disappointments for investors. Dalio held about 709,200 shares valued at $25.74 million. Jean-Marie Eveillard’s First Eagle Investment Management and Ken Fisher’s Fisher Asset Management held the most prominent stakes in Intel Corporation (NASDAQ:INTC) among the funds that we track, at the end of 2014.
International Business Machines Corp. (NYSE:IBM)’s meagre 0.74% first quarter returns did little to tick the huge fund’s needle further down the green zone, especially given its relatively small stake which amounted to about 147,100 shares valued at $23.61 million. Legendary investor Warren Buffett is a prominent stakeholder of International Business Machines Corp. (NYSE:IBM), and despite the company’s downhill trajectory he increased his stake in the company by 10% during the fourth quarter.
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