Hedge funds don't get the same level of attention among investors as publicly traded funds like Cathie Wood's Ark Invest exchange-traded funds (ETFs) or Warren Buffett's Berkshire Hathaway, but it's worth following the moves of these privately held funds that cater to wealthy individuals and institutional investors. After all, these companies sometimes control more than $100 billion in wealth, making them major players in the stock market.
The biggest hedge fund in the world today is Bridgewater Associates, which has around $200 billion in assets under management. Bridgewater was founded in 1975 by Ray Dalio, and has grown exponentially over the years. It was one of the few hedge funds to emerge as a winner during the great financial crisis in 2008, and Dalio tends to focus his investing strategy on macroeconomics, following the direction of the economy rather than the behavior of individual companies.
Though Dalio is no longer involved with Bridgewater on a day-to-day basis, the fund still attracts a lot of attention. Bridgewater's two biggest holdings are ETFs, the iShares Core MSCI Emerging Markets ETF and iShares Core S&P 500 ETF. Notably, its top five individual stock holdings as of its third quarter are all big-brand consumer staples stocks that investors use every day. Let's take a look at each one.
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1. Procter & Gamble (4.2% of Bridgewater's portfolio)
Procter & Gamble (PG -0.78%) may be the best consumer defensive stock you can find on the market. The company is nearly 200 years old and has around 20 brands that generate $1 billion or more a year in revenue. P&G's strong position in products like diapers, shampoo, razors, paper products, and more makes it virtually recession-proof, and the company also has a long history of raising its dividend, rewarding investors. It's increased its dividend for 67 straight years, and now offers a dividend yield of 2.5%.
2. Coca-Cola (3% of the portfolio)
Coca-Cola (KO) is another consumer staples stock that has many of the same strengths that Procter & Gamble does. It has a similar portfolio with several valuable brands beyond just its namesake. Those include Minute Maid, Fanta, Powerade, Costa Coffee, and a minority stake in Monster Beverage.
Coca-Cola also has a long track record of raising its dividends and the company benefits from a range of competitive advantages, including its well-known brands, distribution network, and its marketing muscle. While soda consumption may be on a slow decline, Coca-Cola has been diversifying beyond just traditional sodas.
3. Costco Wholesale (2.8% of the portfolio)
Costco Wholesale (COST 1.01%) is one of the biggest retailers in the world and another classic defensive stock. Not only is the company known for rock-bottom prices on its merchandise, but it also locks customers in through its membership model. In fact, the company makes most of its profits from membership fees.
That makes the stock a smart investment during recessions as members aren't likely to quit the service. Costco also recently paid a special dividend of $15 per share in December, and Bridgewater may have been holding the stock to take advantage of that.
4. PepsiCo (2.7% of the portfolio)
PepsiCo (PEP -0.62%) offers many of the same benefits as Coca-Cola, but with the added diversification that comes from its food business. The company owns Frito-Lay snacks, which brings in roughly as much revenue as its beverages division in North America, and it also owns Quaker Foods.
Pepsi is yet another Dividend King in Bridgewater's portfolio, having raised its dividend for 51 years in a row. Like Coca-Cola, it also enjoys advantages like its distribution network, marketing, and brand advantages, which position it well for continued growth.
5. Walmart (2.6% of the portfolio)
Walmart (WMT -0.08%) is the world's biggest retailer, and the company has taken significant steps to increase its competitiveness in recent years, beefing up its e-commerce offerings and leveraging its strengths in grocery.
Like most of the stocks on this list, Walmart is also a reliable dividend growth stock with 50 straight dividend increases. Its reputation for low prices and its strength with low- to middle-income customers also make it a recession-proof stock.
What these stocks say about Bridgewater
Bridgewater seems to be taking a defensive position in the market, preparing for a potential recession by investing in dividend-paying, recession-proof stocks. Dalio also recently advocated holding cash, a sign he believes it's worth taking a conservative stance in the market at the moment.
That doesn't mean that the stock market is headed for a recession, but understanding how the biggest investors are approaching the current market situation can help inform your own investing decisions.
