Ray Dalio's new book and a popular TED talk have raised awareness of his stock-picking prowess and that may have you wondering what stocks his hedge fund, Bridgewater Associates, has been buying lately. Fortunately, Bridgewater must file a report with the Securities and Exchange Commission every quarter that reveals its holdings.
Since this report gives investors an inside look at what Dalio's team finds most interesting, let's consider a few of Bridgewater's most intriguing recent buys and see if they're right for your portfolio, too.
What glistens is gold
I don't know if Dalio's stockpiling gold bars under his bed, but based on his third-quarter holdings, it's clear his team thinks there's money to be made by owning it.
In the quarter, Bridgewater increased its ownership of the SPDR Gold Shares ETF (NYSEMKT:GLD) and tripled its stake in the iShares Gold Trust (NYSEMKT:IAU). Both of those ETF own gold bullion and track the price per ounce of gold. Typically, gold is viewed by investors as a hedge during uncertain times. That's because it's not as correlated to the SPDR S&P 500 ETF (NYSEMKT:SPY) or the iShares 20+ Year Treasury ETF (NASDAQ:TLT) as are other investments.
Gold rallied to 52-week highs in September, but recently, it's lost a little of its luster. That's OK because Bridgewater is probably only using it to offset some market risk. Dalio told investors back in August that gold should represent between 5% to 10% of investment portfolios because of political and economic question marks. Even with the recent decline, both of these gold ETFs are still up nicely year to date.
Obviously, there's no telling if Bridgewater still owns its position in gold today, but since the political and economic landscape is little changed, it's probably a fair bet that the fund still owns gold.
Leap into luxury
If metals aren't your kind of investment, don't worry. Bridgewater owns 429 different individual stocks, and it's been gobbling up shares in a few different companies that may catch your fancy.
For example, it increased its Michael Kors Holdings (NYSE:CPRI) position by more than 400% last quarter and now owns 464,437 shares of the designer, worth $25 million as of Sept. 30.
We don't know exactly how much Bridgewater paid for its Michael Kors shares, but there's a good chance that trade is working out nicely for Dalio. The company's share price has climbed from the mid-$30s to the mid-$50s since July.
Two big reasons for the snapback rally in Michael Kors shares are its acquisition of Jimmy Choo and strong growth overseas. It announced its agreement to buy Jimmy Choo in July and closed on the deal on Nov. 1. The acquisition of the luxury shoe brand adds about $100 million to $125 million in quarterly sales, and over time, Michael Kors believes it can be a $1 billion-per-year brand.
In early November, Michael Kors shares rallied sharply following better-than-expected top- and bottom-line results. Revenue grew 5.5% year over year to $1.15 billion, $100 billion ahead of industry watchers' outlook. Meanwhile, earnings per share clocked in at $1.33, $0.50 better than expected. The stars of the quarter were Europe and Asia, where sales increased 9.2% to $270 million and 30.4% to $124 million, respectively. America's sales were essentially flat.
Given the company's Jimmy Choo deal and growth overseas, it's understandable why Bridgewater bought shares.
Think outside America
Bridgewater's recent buys suggest it might be time to up your exposure to overseas markets.
It increased its stake in iShares Core MSCI EAFE (NYSEMKT:IEFA) to nearly 2.4 million shares, up 185% from the second quarter, bringing that position to about $150 million. It also expanded its stake in the iShares MSCI EAFE ETF (NYSEMKT:EFA) by 178% to $169 million. Plus, it bought more shares in Vanguard's Developed Markets ETF (NYSEMKT:VEA) and iShares JP Morgan's USD Emerging Markets Bond ETF (NYSEMKT:EMB), an international bond fund.
Why so much interest overseas? Diversification. U.S. stocks have been outperforming foreign stocks for a while and that suggests that there could be some bargains in other markets. If so, then mean reversion should help foreign stocks close the performance gap to the U.S. market.
Things to consider
Dalio's been at this a long time, and he and his team at Bridgewater have seen their fair share of booms and busts. This experience likely influences Dalio's vehement observation of an idea meritocracy, where free-flowing, open debate of investment ideas is mandatory. Without being in the room to hear the arguments for and against these investments, we're left to our own assumptions. An educated guess, however, is that Bridgewater's gold stake is simply a reflection of the uncertain times we're living in and his interest outside the U.S. is a bit of a valuation play.
As for Michael Kors, it's less clear. The company represents only a small fraction of Bridgewater's multibillion-dollar portfolio, and given the fund's historical turnover, it may not even remain in the portfolio this quarter. We'll have to wait until next quarter to find out. Regardless, Michael Kors does appear to be turning a corner after a few tough years and that could make it worth adding to a consumer discretionary portfolio.