The world’s largest hedge fund Bridgewater Associates was founded by billionaire investor Ray Dalio in 1975. It has nearly $80 billion in assets under management (AUM) and it owns positions in over 740 different stocks. Bridgewater is what you might call diversified.
That also means no one position is likely to command a particularly large percentage of its holdings. Although Dalio relinquished the day-to-day operations of Bridgewater in 2022, the hedge fund still operates under the principles the billionaire invested during his 47 years at the helm.
Bridgewater Associates’ two largest holdings are two exchange-traded funds (ETFs): the iShares Core S&P 500 ETF (NYSE:IVV) and the iShares Core MSCI Emerging Markets ETF (NYSE:IEMG). They represent 5.7% and 5.3%, respectively, of the fund’s total portfolio. It’s not a bad base strategy for investors to emulate.
Dalio owns the 500 biggest companies in the U.S. as well as the best stocks in emerging markets. He gets stability and growth while diversifying across hundreds of companies and geographies.
Being a stock picker, though, he also owns more than a handful of individual companies. The following three stocks are Ray Dalio’s largest stock positions.
Costco (COST)
Warehouse club Costco (NASDAQ:COST) is the third-largest holding, representing 2.5% of the total. At the end of the fourth quarter, Bridgewater held over 687,000 shares worth $454 million. Yet the hedge fund has been steadily selling down its stake as Costco’s stock price has risen. One year ago, it owned nearly one billion shares.
On the surface it might not seem to have been a wise choice. Over the course of 2023, COST stock rose 45%, meaning Bridgewater left a lot of profits on the table. But unlike Warren Buffett, who is nominally a buy-and-hold investor, Dalio has no problem with taking profits, or what he terms “rotating the portfolio.” He uses the gains from one stock to reinvest in other stocks that lag the market.
Perhaps, but Costco is a profit-producing machine with earnings over the last five years up 88%. They’ve more than tripled over the past decade. The stock trades at less than twice its sales and long-term earnings growth is pegged at around 10% annually. It is positioning itself for a new increase in membership fees, which will translate into an immediate boost to revenue that will fall right to the bottom line.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is the second-largest holding in the portfolio, accounting for 2.6% of the total. Bridgewater owns 8 million shares worth $472 million. The hedge fund hasn’t rotated all that much stock from the position as the share count remains fairly consistent, only moving up and down slightly each quarter.
Yet, Coca-Cola hasn’t had quite as good of a performance as Costco. The beverage stock lost over 7% last year though the stock is up almost 4% in 2024. While carbonated drinks still represent the biggest segment of the company’s brand portfolio, Coca-Cola invested heavily in other non-soda categories. In all, it owns more than 500 non-alcoholic beverage brands, including water, juice, ready-to-drink teas and coffees, and energy and sports drinks.
The company is another cash-generating company, ending 2023 with just under $10 billion in free cash flow (FCF). What many investors like about Coca-Cola is the consistency and safety of its dividend, which currently yields 3.1% annually. KO has increased the payout every year since 1967, which makes it a Dividend King.
Procter & Gamble (PG)
The largest stock holding in Bridgewater Associates portfolio at 3.8% of the total is consumer products giant Procter & Gamble (NYSE:PG). The hedge fund owns 4.6 million shares worth $680 million. While it did own 5 million shares at the end of 2022, Bridgewater hasn’t sold off much in the way of PG stock.
Procter & Gamble’s brands typically hold the No. 1 or No. 2 selling position in their respective markets. The benefit of brand names is their consistency because shoppers know the quality they are getting no matter what store they walk into anywhere in the world. Also, they tend to command a premium price, which helps boost profits, though it can hurt in an inflationary environment.
Although PG stock is up 11% over the past year, much of that growth has come in recent months. The stock was feeling the pressure of inflation and high interest rates but is now growing once more.
As you can see from these top-three picks, consumer-facing companies are a favorite of the fund. Consumer discretionary stocks make up over 29% of the portfolio while consumer staples comprise another 11%. Six of the top seven holdings are consumer-oriented stocks representing almost 16% of the portfolio.
On the date of publication, Rich Duprey held a LONG position in KO and PG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
