The Fed’s aggressive rate hikes have cast a huge shadow over the stock market. Among the experts sounding the alarm is Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates.
In a LinkedIn post in June, Dalio warned that the Fed’s tightening could lead to stagflation — an economic condition marked by high inflation but without the steady economic growth and employment that usually comes with it.
“[O]in the long run, the Fed will most likely chart a middle course that will take the form of stagflation. And recently, Bridgewater’s chief investment officer Greg Jensen told Bloomberg that the Fed’s hawkish stance has yet to be fully appreciated.
“Overall, let’s say asset markets are down about 20% to 25%,” he predicted.
If you are wondering what are we to make of this bleak outlookhere’s a look at some of Dalio’s biggest hedge fund holdings.
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Vanguard FTSE Emerging Markets ETF (VWO)
According to Bridgewater’s most recent 13F filing with the SEC, the fund held 15.43 million shares of Vanguard FTSE Emerging Markets ETF at the end of June. With a market value of about $643 million at the time, VWO was the seventh-largest holding in Dalio’s portfolio.
VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index and provides investors with convenient exposure to stocks in emerging markets such as China, Brazil and South Africa.
The ETF holds more than 5,000 stocks. Its biggest holdings include industry heavyweights such as chip giant Taiwan Semiconductor Manufacturing, Chinese tech giant Tencent Holdings and Indian multinational conglomerate Reliance Industries.
In a recent conversation with another investment legend, Jeremy Grantham, Dalio said he was looking at countries with good earnings reports and balance sheets that could weather the storm.
“Developing Asia is very interesting. India is interesting,” he adds.
Procter & Gamble (PG)
Bridgewater’s largest holding is a defensive stock with the ability to deliver cash returns to investors in a variety of economic environments: Procter & Gamble.
In April, P&G’s board announced a 5% dividend increase, marking the company’s 66th consecutive increase in its annual payout. The stock currently offers an annual dividend yield of 2.6%.
It’s easy to see why the company manages to maintain such a streak.
P&G is a consumer goods giant with a portfolio of trusted brands such as Bounty paper towels, Crest toothpaste, Gillette razors and Tide laundry detergent. These are products that households buy regularly, regardless of what the economy is doing.
Johnson & Johnson (JNJ)
With deep-rooted positions in the consumer healthcare, pharmaceuticals and medical devices markets, healthcare giant Johnson & Johnson is another name that has provided consistent returns for investors over economic cycles.
Many of the company’s consumer health brands — such as Tylenol, Band-Aid and Listerine — are household names. In total, JNJ has 29 products, each of which can generate over $1 billion in annual sales.
Johnson & Johnson not only posts recurring annual earnings, but also grows them consistently: over the past 20 years, Johnson & Johnson’s adjusted earnings have grown at an average annual rate of 8%.
JNJ announced its 60th consecutive annual dividend increase in April and now carries a yield of 2.7%.
As of June 30, Bridgewater owned 4.33 million shares of JNJ, worth about $769 million at the time, making it the fund’s second-largest holding.
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