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Ray Dalio’s Bridgewater Associates was founded in 1975. It's based in Westport, Connecticut, and currently has more than 900 employees. Ray Dalio, a jazz musician’s son, made his first trade at the age of 12. He received his BA from Long Island University and MBA from Harvard Business School. Dalio won a “Lifetime Achievement” award from a couple of different sources. Bridgewater is the biggest hedge fund in U.S., now managing about $58.9 billion.

Ray Dalio explains his investment process on Bridgewater’s website as follows:

We believe the best way to manage money is to separate investment alpha (value-added return from active management) from beta (return from passively holding a portfolio) and then create optimal portfolios of each. At Bridgewater, we manage money for clients across most major asset classes by replicating a client benchmark and overlaying the benchmark with our optimal alpha strategy, Pure Alpha®. Clients specify their desired targeted level of risk.

To generate alpha, we follow a fundamental and systematic investment process. By fundamental, we seek to understand the timeless and universal influences on global markets. By systematic, we pre-specify all of our investment criteria, allowing us to debate and test their merits and implement decisions with objectivity and thoroughness. This process gives us the ability to make better decisions and create more diversified portfolios, producing more consistent performance.

According to a recent interview, Ray Dalio thinks the U.S. dollar will slowly lose its reserve currency role. Emerging market currencies and gold will hold a bigger role in the next 10 years. Second, he isn’t worried about inflation and he’s bullish about U.S. equities. “U.S. Equities first are comparatively cheap but more importantly flows are beneficial to them,” Dalio said. Overall Ray Dalio is insanely bullish about emerging markets.

Bridgewater manages a variety of asset classes including currencies, bonds, equities and commodities. Total U.S. equity investments are $5.9 billion, with $3 billion of that in ETFs. Sixty-seven percent of the ETF investment is the S&P 500 ETF trust and 33% is Emerging Markets Funds. In his latest 13F filings, he had 402 stocks in his portfolio. We compiled the performance of his largest stock positions:

STOCK

VALUE (Million $)

RETURN

SPDR S&P 500 (NYSEARCA:SPY)

2323

5.3%

Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO)

695

-1.6%

iShares MSCI Emerging Markets Index (NYSEARCA:EEM)

475

-1.6%

Microsoft Corporation (NASDAQ:MSFT)

54

-6.5%

General Electric Co. (NYSE:GE)

31

12.2%

iShares iBoxx $ Invest Grade Corp Bond (NYSEARCA:LQD)

28

0.5%

Oracle Corp. (NYSE:ORCL)

28

4.9%

American Express Company (NYSE:AXP)

25

2.3%

Novellus Systems, Inc. (NASDAQ:NVLS)

25

28.0%

Applied Materials, Inc. (NASDAQ:AMAT)

24

19.6%

Newmont Mining Corp. (NYSE:NEM)

23

-11.7%

iShares S&P 500 Index (NYSEARCA:IVV)

22

5.0%

ITT Educational Services Inc. (NYSE:ESI)

21

15.7%

Cephalon Inc. (NASDAQ:CEPH)

20

-9.0%

PulteGroup, Inc. (NYSE:PHM)

18

-11.7%

TRW Automotive Holdings Corp. (NYSE:TRW)

18

12.8%

Capital One Financial Corp. (NYSE:COF)

18

14.1%

Health Management Associates Inc. (NYSE:HMA)

17

6.4%

Macy's, Inc. (NYSE:M)

17

-7.7%

Lexmark International Inc. (NYSE:LXK)

17

4.6%

Weighted average return of Dalio’s largest 20 positions is 3.2%, which is 2.1 percentage points lower than SPY’s 5.3% return. Eight of 20 stocks have beaten the market since the end of December. Best performing stock is NVLS. LQD and NEM were added to the portfolio during the last quarter. Stock holdings of CEPH, M and LXK increased by 24.6%, 18.2% and 154%, respectively, during the last quarter. On the other hand, stock holdings of AXP, NVLS, AMAT, ESI, TRW and COF are significantly reduced. Ray Dalio's second and third biggest position is emerging market ETFs. George Soros was bearish about emerging markets and so far he seems to be right. Ray Dalio's bet seems to be longer term, though.

Ray Dalio added 88 stocks to his portfolio during the last quarter of 2010. Below are the largest 20 new position and their returns since the end of December.

STOCK

VALUE (Million $)

RETURN

iShares iBoxx $ Invest Grade Corp Bond (LQD)

28.4

0.5%

Newmont Mining Corp. (NEM)

23.0

-11.7%

CR Bard Inc. (NYSE:BCR)

11.6

6.1%

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)

10.5

-13.5%

Hartford Financial Services Group Inc. (NYSE:HIG)

9.5

8.4%

Tiffany & Co. (NYSE:TIF)

9.4

0.5%

First Horizon National Corp. (NYSE:FHN)

9.2

-3.0%

Boston Scientific Corporation (NYSE:BSX)

8.6

-0.5%

Crown Castle International Corp. (NYSE:CCI)

8.5

-6.6%

Ansys, Inc. (NASDAQ:ANSS)

8.2

5.6%

Tractor Supply Company (NASDAQ:TSCO)

7.3

11.4%

General Mills Inc. (NYSE:GIS)

6.9

4.1%

Graco Inc. (NYSE:GGG)

6.8

5.1%

Harley-Davidson, Inc. (NYSE:HOG)

6.3

14.9%

Cliffs Natural Resources Inc. (NYSE:CLF)

6.1

27.3%

Convergys Corporation (NYSE:CVG)

5.4

6.1%

Simon Property Group Inc. (NYSE:SPG)

5.3

8.0%

Omnicare Inc. (NYSE:OCR)

4.7

16.3%

Janus Capital Group Inc. (NYSE:JNS)

4.7

0.9%

Trimble Navigation Limited (NASDAQ:TRMB)

4.5

26.1%

Nisource Inc. (NYSE:NI)

4.3

9.7%

Family Dollar Stores Inc. (NYSE:FDO)

4.2

1.7%

Weighted average returns of Dalio’s new biggest positions are 2.3%, underperforming SPY by 3 percentage points. Eleven of 20 picks have beaten the market. CLF is the best performing new pick from Dalio.

Source: Ray Dalio: Extremely Bullish About Emerging Markets