‘Reducing inflation will come at a great cost’: Ray Dalio warns that the Fed will likely trigger something far worse than high prices. Here’s what he likes today
Some say cash is king. But according to Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, it may not be wise to keep too much of your investment money in cash these days.
“Cash is not a safe investment, is not a safe place because it will be taxed by inflation,” Dalio told CNBC last year.
But 40-year high inflation isn’t the only thing that’s concerning the billionaire investor at the moment.
In a LinkedIn post last month, Dalio warns that Fed’s tightening could lead to stagflation – an economic condition marked by high inflation, but without the robust economic growth and employment that usually come with it.
“My main point is that while tightening reduces inflation because it results in people spending less, it doesn’t make things better because it takes buying power away. It just shifts some of the squeezing of people via inflation to squeezing them via giving them less buying power,” he writes.
“[O]ver the long run the Fed will most likely chart a middle course that will take the form of stagflation.”
If you are wondering what to do given this gloomy outlook, here’s a look at some of the biggest holdings at Dalio’s hedge fund.
Don’t miss
Vanguard FTSE Emerging Markets ETF (VWO)
According to Bridgewater’s latest 13F filing to the SEC, the fund held 22.72 million shares of Vanguard FTSE Emerging Markets ETF at the end of March. With a market value of around $1.05 billion at the time, VWO was the 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 like China, Brazil, and South Africa.
The ETF holds more than 5,000 stocks. Its top holdings include industry heavyweights like chipmaking giant Taiwan Semiconductor Manufacturing, Chinese tech behemoth Tencent Holdings, and Indian multinational conglomerate Reliance Industries.
In a recent conversation with another investing legend, Jeremy Grantham, Dalio said he’s looking at countries with good income statements and balance sheets that can weather the storm.
“Emerging Asia is very interesting. India is interesting,” he adds.
Procter & Gamble (PG)
Bridgewater’s second-largest holding is a defensive stock with the ability to deliver cash returns to investors in different economic environments: Procter & Gamble.
In April, P&G’s board announced a 5% dividend increase, marking the company’s 66th consecutive annual payout increase. The stock currently offers an annual dividend yield of 2.5%.
It’s easy to see why the company is able to maintain such a streak.
P&G is a consumer staples giant with a portfolio of trusted brands like Bounty paper towels, Crest toothpaste, Gillette razor blades, and Tide detergent. These are products that households buy on a regular basis, regardless of what the economy is doing.
Alibaba Group Holding (BABA)
Chinese tech stocks haven’t exactly been market darlings. Ecommerce giant Alibaba Group, for instance, is down 40% over the last 12 months.
But Bridgewater Associates still likes the company. As of Mar. 31, it owned 7.5 million shares of Alibaba — a stake valued at $813.9 million at the time.
The downturn in Alibaba shares could give contrarian investors something to think about. In fact, we might be at an inflection point already.
According to the latest earnings report, Alibaba’s revenue grew 9% year over year to $32.2 billion in the March quarter. Its adjusted earnings of $1.55 per share handsomely beat Wall Street’s expectation of $1.07 per share.
Since that earnings report, Alibaba stock has surged nearly 50%.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
