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Here's What a Top-Performing Hedge Fund Has Been Buying

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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, representing the world's largest hedge fund -- and, in 2010 and 2011, 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 42% of its value in the S&P 500 SDPR ETF and 21% in the Vanguard Emerging Markets Stock ETF. The overall value of reportable assets, as of March 31, 2012, was $6.4 billion, although when you include other assets that the fund didn't have to report, Bridgewater had more than $70 billion in total assets under management as of the end of 2011.

Interesting developments
So what does Bridgewater's latest quarterly 13F filing tell us? Here are a few interesting details:

New holdings include Weyerhaeuser (NYSE: WY  ) , which has become a real estate investment trust, required to pay out at least 90% of its earnings as dividends. Like other timber-related companies, its future is somewhat at the mercy of the housing market, which has been dismal for quite some time. In a recent conference call, management mentioned that while its housing backlog has risen sharply, the average selling price of homes has fallen. The company has also felt pressure from rising fuel costs that affect its transport expenses, and from slowing growth in China -- though that was somewhat offset by growth in Japan.

Among holdings in which Bridgewater increased its stake was networking and storage specialist Brocade Communications (Nasdaq: BRCD  ) . It might seem an odd choice, given the company's slowing revenue growth. But earnings have been growing at 20% or more over the past few quarters, and in a recent conference call, management explained that it has been divesting itself of lower-performing businesses and investing in faster-growing, higher-margin ones that may be less profitable in the short run, but should pay off later.

Bridgewater reduced its stake in lots of companies, including Walgreen (NYSE: WAG  ) . The massive drugstore chain has suffered after severing ties with Express Scripts, losing gobs of customers and billions of dollars. Some expect an eventual reconciliation, particularly now that the companies have put their legal wrangling behind them. Until then, though, the company does remain a powerhouse in the industry, recently yielding nearly 3% with a strong dividend-increase history. Some worry about competition from mail-order prescription providers, though.

Finally, Bridgewater unloaded several companies, such as Halliburton (NYSE: HAL  ) and Arch Coal (NYSE: ACI  ) . Oil-field services company Halliburton has been profiting from the growth of fracking for natural gas, but it recently warned of a hit to profitability due to a spike in the price of a necessary fracking supply, guar gum. Some are hoping for natural gas prices to rise, making oil more attractive and driving up demand for even more oil rigs.

Fools are divided on whether it's smart to buy coal stocks or sell coal stocks. With Arch Coal, bulls like the fact that coal is still crucial to our economy and Arch's metallurgical coal serves the steel industry, which will eventually recover, along with the global economy. Meanwhile, bears worry about coal eventually being overtaken by alternative and renewable energy sources and note that much of Arch's business comes from China, where growth seems to be slowing.

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. 13F forms can be great places to find intriguing candidates for our portfolios.

If industrial stocks interest you, check out our special free report, "3 Stocks to Own for the New Industrial Revolution," which details a new technology that might shift the "Made in China" trend back toward "Made in America."

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Weyerhaeuser. Motley Fool newsletter services have recommended buying shares of Express Scripts and Halliburton. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2012, at 12:33 PM, whyaduck1128 wrote:

    "He's clearly rather skilled, as the size of Bridgewater attests."

    Perhaps, but I don't see where there's a direct correlation between size and quality. Think of all those torpid, huge mutual funds, and the many small funds that are doing quite well without the "benefit" of large size.

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