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Bridgewater Associates buys HPQ, RL, and GE and sells TSO, BEN, and CTSH—13F Flash E

Smita Nair

Bridgewater Associates starts new positions in 3Q 2013 (Part 5 of 6)

(Continued from Part 4)

Bridgewater Associates is an investment management firm founded by Ray Dalio in 1975 and based in Westport, Connecticut. It manages approximately $150 billion in global investments for a wide array of institutional clients, including foreign governments and central banks, corporate and public pension funds, university endowments, and charitable foundations. It’s a pioneer in risk budgeting and the separation of alpha and beta, managing portable alpha/global tactical asset allocation (GTAA), hedge fund, optimal beta/risk parity, currency overlay, global fixed income, and inflation-indexed bond mandates.

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Bridgewater Associates started new positions in Hewlett-Packard Co. (HPQ), Ralph Lauren Corp. (RL), and General Electric Co. (GE) and sold Tesoro Corp. (TSO), Franklin Resources Inc. (BEN), and Cognizant Tech Solutions (CTSH).

Why sell Franklin Resources Inc. (BEN)?

Franklin Resources posted net income of $509.0 million or $0.80 per diluted share for 4Q 2013, missing analyst estimates of $0.86 per share. Assets under management were at almost $845 billion, a 4% increase from last quarter and 13% from the prior year. The company said that investor concerns over rising interest rates and municipal bond defaults were the primary contributing factor to the outflows it experienced in the quarter. In the U.S., municipal bond markets have been experiencing a negative feedback loop, as fears of rising interest rates and consequent selling pressures caused yields to move higher, followed by further selling pressure in the retail-dominated market. Its global fixed-income products came under pressure during the quarter, as sales slowed by almost half and redemptions moderated only later in the quarter. Its large flagship U.S.-registered and cross-border global fixed-income funds experienced volatility in performance last quarter, and again in August, which caused investors to pause. It said the volatility in performance was driven primarily by fluctuations in currency valuations and not by expectations of rising interest rates. However, it saw increased sales activity in the U.S. and global equity categories, with both generating positive net new flows for the quarter. The company has a robust free cash flow, low debt, and high profitability but analysts feel slowing economic growth and regulatory concerns regarding rising interest rates in the future might impact the company’s growth prospects.

Franklin Resources is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management, and K2 investment teams. The San Mateo, California, company has more than 65 years of investment experience and $844.7 billion in AUM as of September 30, 2013.



Bridgewater Associates founder Ray Dalio received a BA from Long Island University and an MBA from Harvard Business School. He founded Bridgewater in 1975 in his New York City brownstone apartment. At the time, he actively traded commodities, currencies, and credit markets. His initial business was providing risk consulting to corporate clients as well as offering a daily written market commentary titled “Bridgewater Daily Observations” that’s still produced. Bridgewater’s competitive edge was creative and quality analysis. According to Dalio, Bridgewater Associates is a “global macro firm.” It uses “quantitative” investment methods to identify new investments while avoiding unrealistic historical models. Its goal is to structure portfolios with uncorrelated investment returns based on risk allocations rather than asset allocations. In 1989, it launched its flagship fund, Pure Alpha, a hedge fund/GTAA/portable alpha strategy. In 1996, it launched a second fund, All Weather, a diversified beta strategy/risk parity portfolio.

Continue to Part 6

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