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Portfolio Overview: How Ray Dalio Invests

A while back we published a blog post about How Warren Buffett Invests. This time, we’ll go over how hedge fund manager Ray Dalio goes about his investments – keep in mind, however, that Passfolio is not making any recommendations based on Ray Dalio’s investment strategy. Our goal is simply to shed light on different approaches to investing. 

Dalio manages the world’s largest hedge fund, Bridgewater, and is famous for developing what he calls an “all-weather portfolio”. By having exposure to different geographies, sectors and asset classes, Dalio seeks to diversify in a way that reduces potential risk and maximizes potential gains in any market condition. 

Here’s a video of Ray Dalio himself explaining his overall investment strategy based on holding uncorrelated assets. Please have in mind, though, that diversification does not ensure a profit or guarantee against loss and at times may not suit your investment objectives: 

Exchange-Traded Funds 

Ray Dalio is pretty fond of Exchange-Traded Funds (ETFs), in part because ETFs are a source of diversification in themselves. By investing in an ETF, you can get exposure to multiple geographies and companies with the convenience of investing in a single security, which makes them potentially interesting options if you seek diversification. 

Some of the ETFs Dalio has invested in are:

SPDR S&P 500 ETF (SPY): The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The S&P 500 Index is a diversified large cap U.S. index that holds companies across a wide range of sectors. Launched in January 1993, SPY was the very first exchange traded fund listed in the United States.

iShares Core S&P 500 ETF (IVV): The iShares Core S&P 500 ETF seeks to track the investment results of the S&P 500 index, composed of large-capitalization U.S. equities. IVV is very similar to the previously mentioned ETF, SPY. 

SPDR Gold Trust (GLD): SPDR Gold Shares is the largest physically backed gold exchange traded fund (ETF) in the world and offers investors one of the lowest available expense ratios for a U.S. listed physically gold-backed ETF. 

Vanguard FTSE Emerging Markets ETF (VWO): Vanguard FTSE Emerging Markets ETF invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan, and South Africa.

Emerging Markets 

Emerging markets are  in Ray Dalio’s portfolio likely for diversification purposes and because of their  growth potential. Emerging markets constitute rather “young” economies with a lot of room to grow and develop. 

When it comes to emerging countries, Brazil and South Korea are two markets Ray Dalio has invested in. In 2019, Dalio’s company Bridgewater said that Brazil should be well on the path to recovery  after a 2015-2016 recession. That’s because of low foreign debt levels, “plenty room for real yields to fall,” and the Brazilian market’s cheapness due to general pessimism about it. Investing South Korea, in turn, gives Dalio exposure to Asia without relying too much on China, which he already has considerable exposure to via his Alibaba Group holdings, for example. 

Among Brazil and South Korea ETFs Ray Dalio has invested in are the iShares MSCI Brazil ETF and the  iShares MSCI South Korea ETF: 

iShares MSCI Brazil ETF (EWZ): The iShares MSCI Brazil ETF seeks to track the investment results of an index composed of Brazilian equities. It provides exposure to large and mid-sized companies in Brazil. 

iShares MSCI South Korea ETF (EWY): The iShares MSCI South Korea ETF seeks to track the investment results of an index composed of South Korean equities. It provides exposure to large and mid-sized companies in South Korea. 

Gold (Store of Value)  

Dalio is big on gold. The major reason for this is that throughout history gold has been used as a store of value – when inflation rises and currencies depreciate, gold tends to maintain its worth. 

In a recent interview for CNBC, Ray Dalio stated that “cash is trash” when asked about where investors should put their money. He explained, warning that investors should get out of cash as central banks continue to print money: 

“The depreciation of the exchange rate and the printing of money over the next few years is going to be the biggest thing – cash is not gonna be good”

Ray Dalio argues that inflation tends to rise in the following years and that investors should allocate their money into assets that have an Annual Percentage Yield (APY) greater than the rate of inflation if they want to preserve wealth. He is particularly bullish on assets that he believes are typically resistant to market downturns, such as gold.

Equities   

Ray Dalio also owns equities.  A few examples of Dalio’s positions worth mentioning are Alibaba Group, The Royal Bank of Canada and Berkshire Hathaway: 

Alibaba Group: Alibaba is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology. This stock gives Dalio exposure to China and to the ecommerce sector, which has the potential to  grow as the country becomes increasingly digitized. Moreover, the Alibaba Group’s holdings include  financial services companies like Ant Financial. 

Royal Bank of Canada: This stock has one of the higher dividend yields (4.64% as of November 2020) and provides some geographical diversification as it is a Canadian bank. In fact, RBC is the largest bank in Canada by market capitalization, serves over 16 million clients and has 86,000+ employees worldwide.

Berkshire Hathaway: Berkshire Hathaway is managed by renowned investors Warren Buffett and Charlie Munger. The company owns a wide variety of stocks such as Coca-Cola, American Express, Apple, and many more. Berkshire is known for value-based investments and has a reputation for buying quality companies at cheap prices. 

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