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The Stocks David Einhorn and Ray Dalio Bought Last Quarter

By Todd Campbell - May 17, 2016 at 5:21PM

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These two iconic hedge fund managers investments last quarter include a stake in a high-dividend paying REIT and an emerging market ETF.

David Einhorn and Ray Dalio may not be household names, but ask any hedge fund manager who the most influential portfolio managers are of our time, and they're likely to be on the list.

These billionaires can move markets when they buy a stock, so it pays to keep tabs on what they're doing with their money. Fortunately, both of these money managers are required to file a 13-F report with the Securities and Exchange Commission that details their activity. Let's take a look at their first quarter filings and see what they've been spending their money on.

Mortgage-backed bets

David Einhorn's Greenlight Capital became one of the most widely watched hedge funds since Einhorn accurately predicted Lehman Brothers failure prior to the Great Recession and Greenlight Capital's investments include $5.6 billion in stocks.

In addition to bumping up stakes in technology companies Yelp Inc. and Apple Inc., David Einhorn also added six new positions to Greenlight Capital's portfolio last quarter.

Of these six new picks, the biggest bet made by Einhorn is on Hatteras Financial Corp (NYSE: HTS), a $1.6 billion market cap real estate investment trust, or REIT, that invests primarily in single-family residential mortgage assets, such as mortgage-backed securities.

Einhorn had previously owned shares in Hatteras Financial in 2014, but he sold his position on worries over rising interest rates. His decision to buy back Hatteras Financial reflects his belief that interest rate risk has now been fully priced into the REIT's share price. That could be true. According to his recent letter to investors, Einhorn paid just 0.64 times Hatteras Financials' December 2015 book value.

There's no telling how long Einhorn will stick around with Hatteras Financial this time (shares are already up substantially this year), but if he decides to stick it out long-term, he'll collect a handsome dividend yield of 10.9% on his $104 million position.

Image source: Bridgewater Associates

Investing for income

Ray Dalio's $7.8 billion Bridgewater Associates is one of the biggest and most diversified stock investors out there, but Dalio still invests his money aggressively despite Bridgewater Associates' size. Last quarter, Dalio and his team made changes to 321 of Bridgewater Associates' 325 holdings. Bridgewater Associates also started new positions in 62 different stocks last quarter, according to its 13-F report.

One of the most intriguing of Dalio's new buys is his $28.5 million position in the iShares MSCI Frontier 100 (NYSEMKT: FM) ETF. The iShares MSCI Frontier 100 ETF invests in the top 100 stocks in roughly 20 frontier-markets. Although it owns stakes in a lot of companies, it's heavily weighted toward financials. Its two biggest holdings are Kuwaiti banks.

I also find Dalio's new stakes in Walt Disney (NYSE: DIS), McDonalds (NYSE: MCD), and fertilizer stocks, such as Potash (NYSE: POT) interesting. Disney recently reported that strong results tied to Star Wars were offset by lackluster results in its cable TV business, causing shares to slip by more than 4%. McDonalds, however, has seen its shares jump 10.5% this year on optimism stemming in part from changes to its menu, including the launch of all-day breakfast items and new value deal combinations. For its part, the fertilizer-maker Potash, which pays a dividend yield of 6.37%, has lost about 2.2% of its value this year.

Dalio seems to think that headwinds from Disney's network business will ease and that McDonalds may benefit from increased foot-traffic tied to stumbles at other fast-food competitors, namely Chipotle. Also, Dalio's bet on fertilizer would seem to suggest he thinks that global demand for food will eventually stabilize prices. But the thread that seemingly connects each of these investments is dividends. All of his top new buys generate dividend income, including the MSCI Frontier 100 ETF, which yields 2.7%.

Editor's note: An earlier version of this article mistakenly noted that Bill Ackman's Pershing Square had purchased a stake in Nomad last quarter -- the purchase was actually made in 2015. The Fool regrets the error.


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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$233.91 (2.14%) $4.91
The Walt Disney Company Stock Quote
The Walt Disney Company
$102.42 (-0.70%) $0.72
Nutrien Stock Quote
Bausch Health Companies Inc. Stock Quote
Bausch Health Companies Inc.
$9.93 (-2.17%) $0.22
iShares, Inc. - iShares MSCI Frontier 100 ETF Stock Quote
iShares, Inc. - iShares MSCI Frontier 100 ETF
$29.16 (0.00%) $0.00
Apple Inc. Stock Quote
Apple Inc.
$137.59 (0.17%) $0.24
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,294.11 (1.70%) $21.62
Yelp Inc. Stock Quote
Yelp Inc.
$29.62 (0.51%) $0.15
Herbalife Ltd. Stock Quote
Herbalife Ltd.
$21.89 (1.53%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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