Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at Bridgewater Associates, one of the world's largest hedge fund companies -- and, in 2010 and 2011, running the best-performing hedge fund as well. Bridgewater was founded by Ray Dalio, who focuses on macroeconomic factors as he makes his investment decisions -- factors such as inflation, currency exchange rates, and GDP growth. He's clearly rather skilled, as the size of Bridgewater attests.
It can be hard to find sufficient promising places to park your money, when you have so many billions to invest, but Bridgewater partly solves that problem with index funds, recently holding about 34% of its reportable stock portfolio value in the Vanguard Emerging Markets Stock ETF, 28% in the S&P 500 SDPR ETF, and 27% in the iShares MSCI Emerging Markets Index ETF, for a total of 89%.
Earlier this year, Dalio was so bullish on the stock market that he even suggested that people borrow money with which to invest. That's not the best approach for many, as it adds risk, but it did reflect the degree to which he was bullish.
The company's reportable stock portfolio totaled $11.4 billion in value as of June 30.
So what does Bridgewater Associates' latest quarterly 13F filing tell us? Here are a few interesting details.
The biggest new holdings are Berkshire Hathaway and Micron Technology (NASDAQ: MU). Other new holdings of interest include Two Harbors Investment (NYSE: TWO). Micron is sitting near a 52-week high, despite the weak PC market. Its purchase of Japanese manufacturer Elpida has some investors rather hopeful, as it enhances Micron's capacity, its pricing power, and its relationship with Apple. It also delivers cash, which Micron might use for share buybacks or to reinstate its long-discontinued dividend. Some worry, though, about competition, the industry's cyclicality, and Micron's debt levels. Micron beat expectations for both revenue and earnings in its last quarter and recently announced that i6t's cutting more than 1,000 jobs.
Two Harbors is a mortgage REIT, or "mREIT," recently yielding a gargantuan 12.6% -- though its payouts don't get the lower tax rates of other dividends. It has more flexibility than some of its peers because it's a "hybrid" mREIT, investing in both government agency-backed mortgages and ones that aren't so backed. Some worry about rising interest rates and prepayments on loans, but Two Harbors has hedged against some of that and has been diversifying its operations lately, for example buying a mortgage servicing company. Insiders and institutions have been buying shares in recent months.
Bridgewater Associates reduced its stake in lots of companies, including Freeport McMoRan Copper & Gold and Occidental Petroleum. Among holdings in which Bridgewater increased its stake were gold miners IAMGOLD (NYSE: IAG) and New Gold (NYSEMKT: NGD), both of which are down considerably over the past year as the price of gold has fallen. IAMGOLD just released its second-quarter numbers, noting that it has achieved 55% of its cost-cutting goals. Lower costs will help it boost profit margins. The company has been diversifying its base and is hoping it won't face higher taxes from Canada. It has also been moving toward being more of an owner-operator, as that gives it more control over its operating cost. IAMGOLD recently yielded 5%.
New Gold is also working on lowering its costs and just posted second-quarter results featuring production up 8%. Its revenue has been growing nicely, and it sports positive net income, but its debt and share count have been creeping up, and its free cash flow has been negative. Management remains bullish, though, asserting in a recent conference call, "Collectively our assets are in what we believe are the right jurisdictions. We have substantial gold resources across a diversified asset base in countries with mining histories. We view our organic growth pipeline as unrivalled. "
Finally, Bridgewater Associates' biggest closed positions included CVS and Juniper Networks. Other closed positions of interest include Genworth Financial (NYSE: GNW). My colleague Robert Eberhard called Genworth cheap back in March, but it still sports a forward P/E ratio near 8, well below its five-year average. It has been making itself more attractive, in part by selling off its wealth management business – and it reportedly may exit the long-term-care insurance business, too, if it doesn't win rate increases. The company has also been cutting costs by laying off several hundred people. Genworth stands to benefit from a rebound in housing, as it insures mortgages -- though some worry that tightening lending standards may result in less need for its insurance. The company recently reported second-quarter net operating income up 93% over year-ago levels, but analysts had been expecting more.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing, and 13F forms can be great places to find intriguing candidates for our portfolios.
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