According to the second quarter letter to shareholders from Ray Dalio’s Bridgewater Associates, the first world continues to be in a deleveraging phase. And while the US deleveraging is playing out reasonably well, the Eurozone is having (and will continue to to have) difficulties in metamorphosing from an “ugly” to “beautiful” deleveraging.
Further, the ongoings in the developed world are directly slowing the emerging countries’ growth, with China being the most notable one. To read Mr. Dalio’s detailed analysis please read the full Letter to Shareholders.
How is Mr. Dalio playing on these macro themes?
He has added two positions, one macro and one individual security, both related to commodities which according to the letter have seen an (unjustified?) sell-off.
Their biggest purchase was in Brazil. The position was built through MSCI Brazil Index Fund, an ETF trading in NYSE under the symbol EWZ. The bet was slightly over 100 million dollars, purchasing about 2 million shares at an average of 56 dollars (currently the price is under 52). The Brazil Index holdings are significantly skewed towards Basic Materials, Energy and Industrials.
The second biggest new position in the hedge fund was Cliff’s Natural Resources (symbol CLF) — a US operator of iron ore and coal mines concentrating on the international markets where demand is the highest, currently focusing on the Asian and Brazilian markets. Bridgewater Associates bought close to quarter million shares. (Interestingly they earlier had a position in CLF which they had closed out in the first quarter, but as the stock price declined further they have picked it up again as a value buy.)
To learn more about Mr. Dalio’s fund, see our profile of Bridgewater Associates. At the time the profile was written the fund had already become the biggest US hedge fund, and since then it has also become the top fund in terms of the quantum of gains it has made for its investors (taking the enviable title away from Mr. Soros.)