Bridgewater Gets Picky With Its Emerging-Markets Bets

Bridgewater Gets Picky With Its Emerging-Markets Bets

  • Dalio’s firm sells three broad funds, raises Brazil exposure
  • ‘It makes sense to pick up some single-country bets’

Beggars can’t be choosers. But if you’re the world’s richest hedge fund right now, you need to be as picky as possible.

Bridgewater Associates, the $160 billion hedge fund firm run by billionaire Ray Dalio, refined its bets on emerging markets in the first quarter, pulling cash out of three broad-based exchanged-traded funds and boosting its position in an ETF exclusively focused on Brazil, according to the firm’s latest 13F filing, which discloses some information on quarterly holdings.

Bridgewater Boosts Brazil

World's largest hedge fund cuts back on broad EM fund and increases Brazil bet

Source: Bloomberg, 13F filings

“If you’re running an EM strategy and on the hunt for outperformance, it makes sense to pick up some single-country bets,” according to Bloomberg Intelligence analyst Eric Balchunas. “Everybody knows there’s a lot of dispersion in EM and stepping out to make some overweight calls is classic active management, just using ETFs.”

In the first three months of the year, Bridgewater unloaded more than $2 billion worth of shares in three big emerging market ETFs: the iShares MSCI Emerging Markets ETF (EEM), its cheaper counterpart the iShares Core MSCI Emerging Markets ETF (IEMG), and the Vanguard FTSE Emerging Markets ETF (VWO). The combined 45 million shares were the largest sales by the money manager in the period.

Meanwile, Dalio’s firm scooped up nearly 625,000 shares of the iShares MSCI Brazil ETF (EWZ), which placed the fund among Bridgewater’s 10 largest position increases. The total market value for that ETF amounted to $62 million. Over the past four quarters, the hedge fund firm has boosted its EWZ exposure by 40 percent while slashing its position in EEM to one-fourth the size.

Of course, institutional investors use ETFs for many reasons, including to hedge other positions, so it’s impossible to know exactly why Bridgewater bought and sold these funds.

Brazilian stocks significantly outperformed broader emerging markets shares in the first quarter amid a strong earnings climate as the country rebounds from the worst recession in a century and enters a period of economic recovery. The MSCI Emerging Markets Index rose around 1% in the first three months of the year, compared with an almost 12 percent surge in the Ibovespa Brasil Sao Paulo Stock Exchange Index over the same time frame.

— With assistance by Tom Lagerman, and Aline Oyamada