In this article, we take a look at billionaire Ray Dalio’s top 10 stock picks for 2021. You can skip our detailed discussion of Ray Dalio’s investment philosophy and go directly to Ray Dalio’s Top 5 Stocks Picks for 2021.
The American billionaire Raymond Thomas Dalio’s hedge fund Bridgewater Associates saw big losses in 2020 as the quant hedge fund’s computer-based stock-picking strategies failed to accurately predict the pandemic-related downturn. Quantitative stock investing strategies rely on historical data and market patterns. Unfortunately, the stock price movements during the pandemic year were unprecedented, resulting in a loss of more than $12 billion for the world’s all-time best-performing hedge fund in 2020.
“We have never had a significant downturn, all positive years, but we knew that there would come a day,” Dalio said in a Bloomberg TV interview. “We missed the pandemic going down, and that is the reality.”
Despite the hefty losses in 2020, Bridgewater Associates leads the hedge fund industry, with net gains of $46.5 billion since inception. The billionaire is also optimistic about the future performance and his hedge fund’s ability to earn back what it lost in 2020. The quant hedge fund has made several changes in its portfolio to benefit from changing market trends. This is what Westport, Connecticut-based Bridgewater said in a statement.
“Investors believe this environment, where the world is changing rapidly, is a strong environment for a firm like ours that is so committed to understanding how the world works,”
Ray Dalio’s Bridgewater Associates has initiated positions in 169 stocks during the fourth quarter to outperform the market trends in 2021. However, none of the new stock positions are big enough to be included in Ray Dalio’s top 10 stock picks. The firm also added to its 233 existing positions. Ray Dalio’s Bridgewater Associates has also significantly trimmed its portfolio exposure towards the financial sector, which represented only 36% of the overall portfolio at the end of the fourth quarter, compared to 81% of the overall portfolio at the end of the previous quarter.
On the other hand, Bridgewater Associates has expressed confidence in several companies from the consumer staples sectors. These include Walmart (NYSE: WMT), Coca-Cola (NYSE: KO), and Procter & Gamble (NYSE: PG). Investments in the consumer staples sector represented 21.5% of the overall portfolio, according to the latest 13F filings.
The hedge fund sold out 74 positions and reduced stakes in 122 stock positions during the fourth quarter. The largest cuts include a 45% drop in its GLD SPDR Gold Trust position and a 7% decline in SPY SPDR S&P 500 ETF Trust position. The firm started fiscal 2021 with $11.55 billion in 13F portfolio market value and $235 billion worth of total assets under management.
Ray Dalio’s investment firm, which also establishes its future investment strategies based on the macroeconomic trends, says the current cyclical economic environment offers both risk and opportunities for investors. Bridgewater stated this in their 2021 economic outlook report:
“In the markets, the biggest opportunities and the biggest risks arise when you have a confluence of unsustainable flows of money and credit forming prices that discount unlikely future economic scenarios. Today, we see a number of such opportunities and risks unfolding over both cyclical and secular time frames, including the risk of severe wealth destruction if the new paradigm of zero interest rates and coordinated monetary and fiscal policy (MP3) is pushed to its limits,”
While Ray Dalio’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Ray Dalio is a distinguished author and actively publishes long essays on his LinkedIn profile. His essay series titled “The Changing World Order” garnered a massive engagement online. The billionaire, who suffered the tragic loss of his son earlier this year, has also authored “Principles,” a book highlighting Dalio’s investment and life philosophy. Dalio’s video on YouTube titled “How The Economic Machine Works” has received over 21 million views.
Let’s start examining Ray Dalio’s top 10 stock picks for 2021 to see whether the portfolio adjustments would help the billionaire hedge fund manager to outperform the market trends. The top ten positions represent 42% of the overall Bridgewater Associates portfolio.
10. Pinduoduo Inc. (NASDAQ: PDD)
Ray Dalio’s top 10 stock picks for 2021 include Chinese e-commerce platform Pinduoduo Inc. (NASDAQ: PDD). Bridgewater first initiated a position in the Chines platform during the fourth quarter of 2019 and added to its existing position in the December quarter of 2020. PDD is the tenth-largest stock holding of Ray Dalio’s 13F portfolio, according to the latest filings. The shares of the Chinese e-commerce platform grew more than 400% in 2020 and extended the upside momentum into 2021.
Tao Value, which returned 26.43% for the fourth quarter, highlighted few stocks including Pinduoduo in a Q4 investor letter. Here is what Tao Value stated:
“Pinduoduo (ticker: PDD) reported a very strong Q3 2020, beating key KPIs all-around (GMV, active buyers & Revenue). It even surprisingly recorded the first non-GAAP profit (RMB466 million). Yet, the more important development is Duoduo Maicai, a new fresh grocery initiative. It is a natural extension of Pinduoduo’s deep root in agriculture e-commerce, and I think the logistic expertise it accumulated over years should help them compete. It is also a very nascent market, which attracts other tech giants (including Meituan & Alibaba). I will watch very closely on the developments.”
9. iShares Gold Trust ETF (NYSEARCA: IAU)
Ray Dalio continues showing confidence in gold markets over the last two years. However, his position in iShares Gold Trust ETF (IAU) underperformed since the beginning of this year due to pressure on gold prices. IAU ranks 9th on the list of Ray Dalio’s top 10 stock picks, accounting for 2.43% of the overall portfolio. The firm first initiated a position in iShares Gold Trust ETF (IAU) in 2017. iShares Gold Trust invests in the commodity markets, particularly in gold. Formed in 2005, the fund seeks to track the daily performance of the price of gold bullion.
8. iShares Core S&P 500 ETF
Bridgewater Associates seeks to capitalize on the broader market bull-run through investment in iShares Core S&P 500 ETF. The firm has increased its position in iShares Core S&P 500 ETF during the fourth quarter by 30%. It is among the long-running investments of Ray Dalio as the firm has been holding a position in iShares Core S&P 500 ETF since 2010. The price of iShares Core S&P 500 ETF grew almost 16% in the last twelve months, extending the ten years gains to 190%.
iShares Core S&P 500 ETF is managed by BlackRock Fund Advisors and invests in stocks of companies operating across diversified sectors. It invests in growth and value stocks of large-cap companies in order to track the performance of the S&P 500 Index using a representative sampling technique.
7. iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG)
Bridgewater has benefited from its position in iShares Core MSCI Emerging Markets ETF (IEMG) in 2020 because the price of MSCI Emerging Markets ETFs grew 29% in the last twelve months. Despite the past performance, Ray Dalio still looks bullish over the future performance of emerging markets. Consequently, the billionaire hedge fund manager has increased his position by 70% in iShares Core MSCI Emerging Markets ETF during the fourth quarter. MSCI Emerging Markets ETF is an exchange-traded fund that invests in public equity markets of the global emerging region.
6. Alibaba Group Holding Limited (NYSE: BABA)
The largest Chinese e-commerce platform Alibaba Group Holding Limited (NYSE: BABA) is among Ray Dalio’s top 10 stock picks for 2021. Despite pressure on BABA’s shares due to regulatory and political issues, Bridgewater Associates looks confident about the future prospects. The firm raised its position in BABA by 19% in the fourth quarter to 3.22% of the overall portfolio.
In a Q4 investor letter, Miller Value Partners, which returned 35.4% for the fourth quarter, highlighted factors behind slower-than-expected performance from Alibaba. Here is what Miller Value Partners stated:
“Alibaba (BABA) had quite the quarter rising up to a high of $317 in October only to end the quarter down 20% after the delay of the Ant IPO and the announced investigations by the Chinese government into monopolistic practices at the firm. There was additional pressure on the stock as the US House of Representatives passed a bill that threatens to delist Chinese companies from US exchanges unless US regulators are able to inspect their financial audits within three years. During the quarter, the company increased their share buyback program from $6B to $10B. The company report second quarter FY21 results that were largely in-line with expectations. The company reported revs of Rmb155.1B (USD 23.9B) slightly beating consensus of Rmb 153.9B (USD 23.7B) and adjusted EBITDA of Rmb 47.5B (USD 7.3B) versus 41.3B (USD 6.3B). The company maintained full year guidance for revenues of Rmb 650B (USD 100.3B).”
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Disclosure: None. The article Ray Dalio’s Top 10 Stock Picks for 2021 is originally published on Insider Monkey.