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 Fed tightening could lead to stagflation – an economic situation characterized by high inflation but without the strong economic growth and employment that usually accompany it.
“[O]In the long run, the Fed will likely chart a middle course that will take the form of stagnant inflation.” And recently, Bridgewater Co-Chief Investment Officer Greg Jensen told Bloomberg that the Fed’s aggressive stance still hasn’t been fully priced in.
“Overall, let’s assume that asset purchases are down about 20% to 25%,” he predicts.
If you’re wondering what to do given this bleak outlook, check out some of Dalio’s biggest hedge fund holdings.
Vanguard FTSE Emerging Markets ETF (VWO)
According to Bridgewater’s latest 13F filing with the SEC, the fund owned 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 equities in emerging markets such as China, Brazil and South Africa.
The ETF holds more than 5,000 stocks. Its top holdings include industry heavyweights such as chip giant Taiwan Semiconductor Manufacturing, Chinese technology behemoth Tencent Holdings and Indian multinational conglomerate Reliance Industries.
In a recent conversation with another investment legend, Jeremy Grantham, Dalio said he is looking at countries with good income situations and balance sheets that can weather the storm.
“Emerging Asia is very interesting. India is interesting,” he adds.
Procter & Gamble (PG)
Bridgewater’s largest holding is a defensive stock with cash-yielding potential for 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 increase in earnings. The stock currently offers an annual dividend yield of 2.6%.
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 such as 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.
Johnson & Johnson (JNJ)
With deep entrenched positions in the consumer health, pharmaceutical and medical device markets, healthcare giant Johnson & Johnson is another name that has delivered solid returns to investors across 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 capable of generating over $1 billion in annual sales.
Not only does Johnson & Johnson record recurring annual earnings, but it 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 yields 2.7%.
As of June 30, Bridgewater owned 4.33 million JNJ shares, worth about $769 million at the time and making it the fund’s second-largest holding.
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