Ray Dalio’s Bridgewater Associates has submitted its 13F filing with the U.S. Securities and Exchange Commission disclosing its U.S-traded equity holdings (or lack thereof in certain stocks in this case) as of June 30. Overall, there was a noticeable drop in the value of Dalio’s 13F portfolio, to $10.83 billion, down from $12.83 billion at the end of the first quarter. The firm uses a concentrated approach to its investing strategy, with its top ten holdings accounting for 87.94% of its total portfolio value. Dalio founded Bridgewater Associates in 1973 after years of experience and interest in the stock market. In fact, he purchased his first shares at the age of 12 during the early 1960’s. At the moment, he serves the investment management firm as a Mentor, after relinquishing his position as its CEO in 2011. As Bridgewater’s portfolio took a noticeable dip in value, it’s unsurprising that there were a number of positions sold off by the firm, with one being of particular interest, as it was formerly the firm’s second-most valuable long position. We’ll look at the top three positions sold off by Bridgewater during the second quarter, which were Potash Corp./Saskatchewan (USA) (NYSE:POT), Agrium Inc. (USA) (NYSE:AGU), and NVIDIA Corporation (NASDAQ:NVDA).
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 Index by 65 percentage points (see the details here).
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First, let us look at Potash Corp./Saskatchewan (USA) (NYSE:POT), a nitrogen, phosphate, and potash producer headquartered in Canada, in which Bridgewater Associates held a total of 1.22 million shares valued at $39.31 million going into the second quarter, ranking it as the fund’s second top long position in a company after Apple Inc. (NASDAQ:AAPL) (which remains Dalio’s top pick). Held being the key word in the previous sentence, as the firm ended up selling all of its shares by the end of the quarter. Interestingly, the fund was quite bullish on the stock during the first quarter, having raised its stake in it by 103%. The chemical company is a global leader in the production of potash, currently controlling 20% of the world market. This combined with its joint marketing partnership with other companies like Agrium Inc. (which Dalio also sold out of, as you’ll see) and Mosaic Inc has made it possible for it to control potash prices and have favorable gross margins of over 60% and profit margins of around 40%. The company’s performance in the stock market has not been good this year though, having lost 26.08% year-to-date. At the end of the second quarter, Cardinal Capital, led by Amy Minella, held a total of 1.37 million shares worth $42.38 million. This was after reducing its stake in the stock by 24,950 shares. Pittencrieff Partners – Gabalex Capital, headed by Nigel Greig and Kenneth Cowin, reduced its stake in the company by 100,000 shares to 350,000 shares valued at $10.84 million.