Hedge fund titan goes big on Brazil ETF

Prominent hedge fund manager Ray Dalio runs Bridgewater Associates, a $120 billion hedge fund. Close attention is paid to his buys and sells, and Dalio’s most recent SEC filing revealed an acute interest in the Brazil ETF.

Image courtesy Luciano Praça: http://www.sxc.hu/profile/lupraca

Copacabana beach, Brazil.

Dalio publishes a quarterly letter called Outlook and Markets Discussion, and in the second quarter letter Dalio outlines some important points about the global economy. Dalio believes that:

“the developed world remains mired in the deleveraging phase of the long-term debt cycle”… “The European deleveraging has been badly managed and is escalating, bringing Europe closer to either debt implosion or a monetization and currency collapse”.

Dalio also comments that since the “most recent round of global monetary stimulus has ended, world economic growth has slowed and central bankers are in the process of stimulating again”. Bridgewater’s research puts global GDP estimates as having fallen from 3.3% to 1.9% and that 80% of world economies have slowed, including all of the largest. He says China is responsible for about half of the global slowdown, calling it the “locomotive of world growth” and claims it is responsible for 12% of global GDP.

Dalio sees U.S. markets pricing in additional long term deleveraging “including negative real earnings growth, negative real yields, high defaults and sustained lower levels of commodity prices.” The impression is clearly that Dalio sees more risk than reward around the world, but as a money manager his job is to find opportunity where others don’t.

One of his biggest purchases in the second quarter was a large acquisition in the Brazil ETF (EWZ, quote). Dalio’s firm bought 2,002,700 shares of EWZ at an average price of $56 per share, the largest new purchase of the second quarter.  

I find this information interesting and inspiring. Shares of the Brazil ETF are down about 21% from their peak in March this year. But the shares have been down substantially lower, trading as low as $48.27 in June. Dalio’s acquisition occurred during the second quarter so he was holding a lot of shares at a fairly significant loss before they rallied in July and August to $55 today.

The purchase also speaks volumes about Brazil. While the Brazil ETF has been lagging the S&P 500 this year, especially over the last few months, the future for Brazil is still better than the US; or at least this purchase suggests it is. The purchase amounts to a little less than 1% of the fund’s assets, but I would surmise that when we see the third quarter results there will be more shares added to the position.

Seeing an investor like Dalio buy shares of the Brazil ETF at this point in time tells me that although the global economy is slowing, Brazil is still one of the better countries to be invested in. And while many media outlets and market pundits are claiming that the best of the major emerging markets growth has passed, this incredibly successful investor is telling us to stay put, or get invested, in Brazil.

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