In order to spot the best stock pickers in different categories according to market caps, we at Insider Monkey keep a close eye on the performance of over 700 money managers. One such investor is billionaire Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates. From 2006 to 2012, an equal weighted portfolio of the top five large-cap (exceeding $20 billion in market cap) stock picks of Bridgewater had an average monthly loss of 0.04% compared to the S&P 500’s average monthly profits of 0.45%. This performance resulted in a negative alpha of 0.47% per month for the fund in this category. Is it a good idea to stay away from Dalio’s picks in this category then? History says yes. Thus, we decided to take a closer look at his large-cap bets at the end of the first quarter, which included Apple Inc. (NASDAQ:AAPL), Potash Corp./Saskatchewan (USA) (NYSE:POT), and Johnson & Johnson (NYSE:JNJ).
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 142% over the last 33 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Ray Dalio was introduced to the investment world at the tender age of 12, when he bought his first stock in Northeast Airlines. He founded Bridgewater Associates in 1973 and after a long and illustrious career, he stepped down from his CEO post in 2011 and took the title of ‘Mentor’. Currently, he is the co-CIO of the fund along with Robert Prince and Greg Jensen. While assets under the fund’s management amount to $219 billion, the market value of Bridgewater’s public equity portfolio stood at $112.83 billion at the end of March. The finance sector accounted for 87% of the holdings, primarily due to huge investments in a trio of index funds.
Bridgewater’s top large-cap stock holding is Apple Inc. (NASDAQ:AAPL), and it seems to present an entirely different picture from our backtests. The $730 billion tech giant’s stock is up by nearly 15% year-to-date and over 38% over the past year. The fund held about 733,000 shares valued at $91.21 million at the end of the first three months, making it its top long position. Recently, Apple Inc. (NASDAQ:AAPL) unveiled its music service Apple Music, which is set to be launched by the end of this month in over 100 countries. The subscription service also comes with a service called Music Connect, which is meant to connect fans with artists. However, investigations into possible violations of antitrust rules regarding the deals that Apple Inc. (NASDAQ:AAPL) struck with the music labels have already commenced. Activist investor Carl Icahn‘s Icahn Capital is the largest stockholder of Apple Inc. (NASDAQ:AAPL) within our database, holding more than 52.76 million shares valued at $6.57 billion.
During the first quarter Bridgewater acquired some 618,000 shares of Potash Corp./Saskatchewan (USA) (NYSE:POT) to take its stake in the company to 1.22 million shares valued at $39.31 million. The fund has held a stake in the $25.6 billion fertilizer company since the second quarter of 2014. So far this year, Potash Corp./Saskatchewan (USA) (NYSE:POT)’s stock has slid by almost 13%. On the other hand, the agricultural inputs industry is up by 6.77% during the same period. The company offers a sizable dividend yield of almost 5%. However, it might not be the best idea to hold the stock just because of the yield, especially considering that TD Securities recently downgraded Potash Corp./Saskatchewan (USA) (NYSE:POT) to ‘Hold’ from ‘Buy’. Among the billionaires that we track, five had an aggregate investment of $151.93 million in the company. David Shaw is one of them, as the fund he founded, D E Shaw holds about 1.08 million shares of Potash Corp./Saskatchewan (USA) (NYSE:POT) valued at $34.75 million.
Dalio’s holding in the $272.15 billion healthcare company, Johnson & Johnson (NYSE:JNJ), was boosted by 203,800 shares during the first quarter, lifting the current stake to 268,093 shares valued at $26.97 million. So far this year, Johnson & Johnson (NYSE:JNJ)’s stock has slid by a little over 6%, which is worrisome given that the drug manufacturers industry has appreciated by 8.56% during the same period. We can see also that despite the gains in Apple, Dalio’s large-cap picks on the whole have not performed particularly well. Ken Fisher‘s Fisher Asset Management heads the list of Johnson & Johnson (NYSE:JNJ)’s investors that we track, owning some 10.46 million shares valued at $1.05 billion.