Ray Dalio Should Have Investors Rethinking their Strategy Around These 3 Holdings

Say what you want about bond king Ray Dalio, but the CEO of Bridgewater Associates is very opinionated and is what I would call a high-conviction investor. Dalio picks companies and sectors he thinks are unduly beaten down (or those which carry asymmetric levels of risk to short), and he goes out and acts on his beliefs.

At the end of the day, having a view on some specific trend is great. But having the confidence (and ability) to pull the trigger and express a given view with one’s own capital is a whole other ball game. Using data and developing in-house strategies to trade certain events or economic shifts has made Dalio a tremendous amount of money over the years.

Of course, not everyone can replicate Dalio’s trading style or success. But it’s possible for individual investors to dive into his most recent moves, and look to either replicate or mimic those moves — or at least think more critically about what Dalio is looking to accomplish with his trade, and how the thinks about the market. In my view, when an investor like Dalio makes some big shifts in one direction or another — whether you disagree with his views or not — those conviction-linked moves are likely a result of a tremendous amount of research and conviction.

So, without further ado, let’s dive into three of Dalio’s holdings which have been altered in the most shocking manner over the past quarter, and what investors want to make of these moves.

Key Points in This Article

• Recent moves by Dalio include bullish bets on a China-based e-commerce giant, a gold ETF and a household name index fund.  
• The positions demonstrate a blend of value play in tech, a safe-haven position in precious metals and broad exposure suggesting a bullish outlook. 
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Alibaba (BABA)

Dalio has joined the chorus of money mangers who are making a very strong directional bet on where Chinese e-commerce and cloud giant Alibaba (NYSE:BABA) could be headed from here. Now, I have to admit I’ve been wrong on my enthusiasm around Alibaba in the past. This is a company that’s transitioned from a hyper-growth stock to a more mature value play in the tech sector. For some investors, that’s okay – maybe not even okay, but exactly what they’re looking for.

In Dalio’s case, he certainly appears to be in this came. Bridgewater Associates impressively hiked its stake in the Chinese mega-cap tech stock by more than 33x this past quarter, bringing its holdings of BABA stock to more than $725 million (from an earlier stake of around $22 million). 

That’s some real conviction, and this shift now makes Alibaba one of the largest holdings of this particular hedge fund. For those betting that the worst may be over when it comes to the Chinese government crackdown on the tech sector (and disappearing CEOs may be no more), expressing this bet by owning Alibaba is certainly an interesting strategy. I have to applaud Dalio for making this big bet at what seems to be the right time. 

SPDR Gold Shares (GLD)

Aside from international equities (Chinese and European stocks in particular) that have been ripping higher thus far this year amid Trump-related trade tensions, precious metals have been another sector that have caught fire of late. When most investors think of precious metals, gold is the primary meta that comes to mind, given its market cap relative to all other metals in existence. 

As one of the premier ways to express a bullish stance on the price of gold, investing in a fund like the SPDR Gold Shares (NYSEARCA:GLD) is a top way to do so. Bridgewater’s impressive $319 million bet on GLD is an investment very few can make, but it’s one that signals his shift toward gold is real and could be one that’s here to stay. 

This is a first for Dalio in adding GLD to the portfolio, with this position recently initiated seemingly as a way to hedge out some of the inflation-related uncertainty from his portfolio. I think that’s a smart move. And while gold prices continue to remain near their all-time high, the timing of this purchase does coincide with a dip in precious metals prices, indicating that Mr. Dalio appears to have done it yet again and make a winning bet almost out of the gate. 

SPDR S&P 500 ETF (SPY)

Most hedge fund managers (and investors of much smaller size, for that matter) want to beat the benchmark. But for many large investors, even those in the hedge fund world, there’s seemingly some truth to the idea that “if you can’t beat ’em, join ’em.” That appears to be what is reflected in Bridgewater’s largest holding in the portfolio — what was a nearly $5 billion stake in SPDR S&P 500 ETF (NYSEARCA:SPY).

Yup, you read that right – nearly $5 billion invested in an ETF tracking the S&P 500. And while I think SPY is perhaps one of the best (and most liquid) exchange traded funds out there, it’s also true that some investors are taking some cream off the top.

Dalio did just that this past quarter, trimming his position in SPY in a big way (by more than 60%) to “just” $1.9 billion. 

I’d expect this position to continue to change dramatically over time, as Dalio’s view of the market shifts. But for now, this dramatic de-risking from the U.S. stock market (in combination with Dalio’s bets on Chinese equities and gold) does suggest he’s rotating his holdings in a meaningful way. 

Choose to do what you will with that information, but Dalio’s track record speaks for itself.

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