The Fed’s aggressive rate hikes cast a giant 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 condition marked by high inflation, but without the robust economic growth and employment that typically accompany it.
“[O]In the long term, the Fed will most likely chart a middle course which will take the form of stagflation. And recently, Bridgewater co-chief investment officer Greg Jensen told Bloomberg that the Fed’s hawkish stance still hasn’t been fully considered.
“Overall, let’s say asset markets decline between 20% and 25%,” he predicts.
If you’re wondering what to do given this bleak outlook, here’s a look at some of Dalio’s largest hedge fund holdings.
Vanguard FTSE Emerging Markets ETF (VWO)
According to Bridgewater’s latest 13F filing with the SEC, the fund held 15.43 million shares of Vanguard FTSE Emerging Markets ETF at the end of June. With a market value of around $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 offers investors convenient exposure to stocks from emerging markets like China, Brazil and South Africa.
The ETF holds over 5,000 stocks. Its major holdings include industry heavyweights like chipmaker giant Taiwan Semiconductor Manufacturing, Chinese tech giant Tencent Holdings and Indian multinational conglomerate Reliance Industries.
In a recent conversation with another investment legend, Jeremy Grantham, Dalio said he envisions countries with strong 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 largest holding is a defensive stock capable of providing cash returns to investors in different economic environments: Procter & Gamble.
In April, P&G’s board of directors announced a 5% increase in the dividend, marking the company’s 66th consecutive annual increase in payouts. 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 regularly, regardless of the evolution of the economy.
Johnson & Johnson (JNJ)
With deep-seated positions in the consumer healthcare, pharmaceuticals and medical devices markets, healthcare giant Johnson & Johnson is another name that has delivered consistent returns for investors through economic cycles.
Many of the company’s consumer health brands, such as Tylenol, Band-Aid and Listerine, are household names. In total, JNJ offers 29 products each capable of generating over $1 billion in annual sales.
Not only does Johnson & Johnson post recurring annual profits, but it also steadily increases them: over the past 20 years, Johnson & Johnson’s adjusted profits have grown at an average annual rate of 8%.
JNJ announced its 60th consecutive annual dividend increase in April and is now yielding 2.7%.
As of June 30, Bridgewater held 4.33 million shares of JNJ, worth about $769 million at the time, making it the fund’s second largest holding.
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