By Nell Mackenzie and Carolina Mandl
LONDON/NEW YORK (Reuters) – Bridgewater Associates’ flagship fund had a bearish view on U.S. stocks in late July just as a rally that saw the benchmark S&P 500 soar this year was about to lose steam, according to a presentation to investors seen by Reuters.
The July 25 investor briefing, a part of which was seen by Reuters and had not been previously reported, showed the hedge fund founded by legendary investor Ray Dalio was “moderately” bearish on U.S. stocks and Treasuries in its Pure Alpha pool.
A continued rally in stocks forced many hedge funds to unwind their bets against equities last month.
The S&P 500 is up 15.6% year-to-date while the Nasdaq 100 has risen 30.2%, fueled in part by a view that U.S. growth will stay resilient while inflation cools. Both indexes have lost 3.4% and 5.2%, respectively, from their recent highs.
Yields on Treasuries, meanwhile, which move inversely to bond prices, continue to climb. The yield on the 10-year U.S. benchmark Treasury on Tuesday hit 4.274%, its highest since Oct.24.
Rising yields can dull the allure of equities by making bonds look more attractive, while projected company cash flows are also worth less in current dollars when interest rates rise.
Bridgewater, which has $125 billion in assets under management, declined to comment on the presentation about its Pure Alpha fund, which two sources familiar with the matter said was hosted online on July 25. It generally keeps any in-depth views on those assets close to its chest.
The fund had bearish positioning in 15 of the 28 assets it analyzed, including the U.S. dollar, metals and global equities. It was neutral on five categories, such as emerging market currencies and equities, euro zone equities and energy, according to the presentation.
Its top two bullish bets were on the euro and the Singapore dollar, while it was moderately positive about the Mexican peso and inflation-linked bonds.
US BOND MARKET LIQUIDITY
Bridgewater actively bets on the direction of various types of securities — including stocks, bonds, commodities and currencies — by predicting macroeconomic trends.
Greg Jensen, Bridgewater’s co-chief investment officer, offered a rare glimpse into some of the fund’s views on U.S. asset prices in an Aug. 4 podcast posted on the firm’s website. He said that liquidity in the U.S. government bond market was getting worse, as the Treasury increases bond issuance. The higher Treasury issuance is likely to depress asset prices, he added.
Bridgewater’s Pure Alpha 12% volatility fund gained 2.5% in the year through Aug. 11, a third source familiar with the matter said, while the Defensive Alpha fund, less dependent on equities, rose 2.1%. Since it was launched in 1991, Pure Alpha 12% has generated 7.7% net total returns annually, according to the same source.
The All Weather strategy, a multi-asset investment approach structured to be indifferent to shifts in economic conditions, was up 3.8% in the same period, the person added.
Macro hedge funds, caught off guard in their rate bets during the banking crisis in March, have seen their performance dip 0.36% on average in the year through July, the latest data from Hedge Fund Research (HFR) shows.
Here are Pure Alpha’s views:
Asset Bearish Neutral Bullish
Moderate
USD x DMFX
Strongly
EUR x DMFX
Slightly
JPY x DMFX
Strongly
AUD x DMFX
Strongly
CAD x DMFX
X
EM x DMFX
Strongly
Korean Won
Moderately
Mexican Peso
Strongly
Singapore
Dollar
X
Short Rates
Developed
World
Moderately
Bonds USA
Moderately
Bonds UK
Moderately
Bonds DE
Strongly
Bonds
Developed
Markets
Moderately
Inflation-li
nked Bonds
Developed
World
Slightly
Equities
Global
Moderately
Equities USA
X
Equities
Eurozone
Slightly
Equities
Japan
X
Equities
Emerging
Markets
Slightly
Precious
Metals
X
Energy
Slightly
Industrial
Metals
Slightly
Credit
Developed
Corporate
Moderately
Credit
Developed
Sovereign
Slightly
Cash USA
Moderately
Cash
Eurozone
Moderately
Cash Japan
(Reporting by Nell Mackenzie in London and Carolina Mandl in New York; editing by Ira Iosebashvili, Michelle Price and Emelia Sithole-Matarise)
