Here's What the World's Biggest Hedge Fund Has Been Buying
Every quarter, many money managers have to disclose what they've bought and sold, via 13F filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at Bridgewater Associates, the world's largest hedge fund with an astounding $165 billion in assets under management. Bridgewater was founded by Ray Dalio, who focuses on macroeconomic factors in making his investment decisions -- factors such as inflation, currency exchange rates, and GDP growth. He's clearly rather skilled, as Bridgewater's size attests.
Although it can be hard to find promising places to park that much money, Bridgewater partly solves that problem with index funds. According to recent estimates, 37% of its reportable stock portfolio value is invested in the Vanguard Emerging Markets Stock ETF, 25% in the S&P 500 SDPR ETF, and 25% in the iShares MSCI Emerging Markets Index ETF.
So what does Bridgewater Associates' latest quarterly 13F filing tell us about the hundreds of stocks it owns? Below are three new positions it opened:
Wal-Mart Neighborhood Market at Powder Springs Road, Ga. Source:Flickr.
1. Wal-Mart Some investors might dismiss Wal-Mart, assuming its massive size leaves little room for further growth. Well, those who thought that a decade ago, when the company was raking in a bit more than a quarter of $1 trillion in annual revenue, might like to know that it's now closing in on half a trillion in revenue. It also offers investors a solid 2.2% dividend yield, and is in the midst of a $15 billion stock buyback program.
The company has been in the news lately after announcing that it would hike its minimum hourly pay to $9 by April and $10 in February 2016, with managers getting hourly minimums of $13 this year and $15 early next year. That affects about half a million workers. It will cost the company more money, but it can also lead to happier workers, which is generally good for business. It will also leave its workers with more money to spend -- which they might do at Wal-Mart.
The megaretailer has other growth-spurring initiatives under way, including opening hundreds of smaller-format Neighborhood Markets and pursuing stronger growth in Canada, where rival Targetfailed. Its strategy there includes boosting produce and grocery sales, with the hope that doing so will induce customers to shop more frequently. Wal-Mart is already the largestU.S. grocer, and a major seller of organic items, too. The company faces rising healthcare and labor costs, and a strong dollar is depressing international revenue, but the long-term future remains promising.
Costco has been growing more briskly than its peers.COST Revenue (TTM)data byYCharts.
2. Costco One of Wal-Mart's most successful rivals is Costco, which has based its business on a different model -- offering its wares at a low markup while profiting from annual membership fees paid by customers. Costco also pays its workers more than its peers, contributing to higher satisfaction and lower turnover. The company's strategies are working well, with revenue growing at an average of 9% annually over the past 10 years, and earnings growing at 10%. Better still, its membership renewal rates have regularly topped 85% -- and hit 91% in 2014 in the U.S. and Canada.
Costco's dividend, which recently yielded a mere 1%, might not seem that hot, but its payout has roughly doubled over the past five years. Additionally, the company occasionally issues a special dividend. Consider that while its annual dividend payout was recently $1.42, it is paying a $5 special dividend in February, which alone amounts to a roughly 3.4% yield.
Some have worried that the company's customers skew older, and that it needs to attract younger shoppers even though they will likely have less money to spend. Costco has been drawing more younger shoppers, in part via its own organic produce offerings, and it's reasonable to think that with its high retention rates, these folks will stick around and spend more as their incomes grow. At the same time, Costco adds about 30 new stores in the U.S. and abroadevery year. Its recent partnership to sell goods through the online market of China's Alibaba Grouphas investors hopeful about inroads in that populous nation.
Photo: The Motley Fool.
3. Coach Luxury fashion retailer Coach has been going through a rough patch recently. Shares are down about 9% over the past year and the stock has underperformed the market over the past decade. With its stock seeming slightly overvalued, it might seem surprising that Bridgewater would want to buy it. Part of Coach's problem has been that in an effort to reach out to more mass-market consumers, its offerings have lost some of their luxury appeal. In Coach's latest quarter, revenue plunged 20% in North America. And that's an improvement over the previous quarter's 24% drop!
All is not lost, though, as Coach still generates about $800 million in free cash flow annually, which it can use to fund a turnaround through store renovations, new product launches, and marketing. It's also strategicallyclosing its worst performing stores. Meanwhile, it still performs well in some markets, such as China, where sales jumped 12% year over year in the last quarter. Profit margin has not plunged, either, demonstrating pricing power, and inventories have dropped significantly, reflecting items moving off shelves. The company is also making an intriguing acquisitionof shoe company Stuart Weitzman.
Finally, for patient believers, Coach offers a dividend that recently yielded 3.4%.
The article Here's What the World's Biggest Hedge Fund Has Been Buying originally appeared on Fool.com.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter,owns shares of Costco Wholesale. The Motley Fool recommends Coach and Costco Wholesale. The Motley Fool owns shares of Coach and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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