Editor's Note: This content was originally published on
Todd Shriber, ETF Professor, Benzinga Staff Writer
Not that the funds needed any additional help searching for new
downside, but emerging markets
got just that on Wednesday when Federal Reserve Chairman Ben
Bernanke and his colleagues noted that downside risks to the US
economy and labor market have diminished.
Traders took that to mean that tapering of quantitative easing
could be imminent, although the Fed said its $85 billion-per-month
in bond purchases will remain in place.
That was not enough to keep stocks from selling off, and emerging
markets ETFs were among the most egregious offenders. The
Vanguard FTSE Emerging Markets ETF
(NYSEARCA:VWO) and the
iShares MSCI Emerging Markets Index Fund
(NYSEARCA:EEM), the two largest developing world ETFs by assets,
were each down about 3% in late trading.
That could be bad news for Ray Dalio's Bridgewater Associates. At
the end of the first quarter, Bridgewater held massive stakes in
both ETFs. A filing with the Securities and Exchange Commission
showed that at the end of the quarter, Bridgewater owned nearly 84
million shares of VWO, a stake
that was equivalent to the 32.8%
of the fund's equity holdings.
The data also show Dalio's fund held 66.6 million shares of EEM,
which represented 25.9% of Bridgewater's equity holdings, at the
end of the first quarter. Bridgewater slightly boosted its stakes
in both ETFs from the fourth quarter. Translation: Assuming no
alterations to those positions, 58.7% of Bridgewater's equity
positions are devoted to two ETFs that have been dogs this year.
Assuming both ETFs close with losses of 3% Wednesday, the pair will
have year-to-date declines of about 15%.
Hedge fund legends make mistakes. That much is known. Just enter
"Paulson gold fund" into any search engine. To be fair to Dalio,
Bridgewater did significantly trim what was once a significant
position in the
iShares MSCI Brazil Index Fund
(NYSEARCA:EWZ) in the first quarter, though the fund
still has significant Brazil exposure
Latin America's largest economy accounts for
14.4% of VWO's weight
and 11.5% of EEM.
As another way of being fair to Dalio, a couple of other points
must be raised. Perhaps Bridgewater has protective puts on EEM and
VWO or sold some calls as hedges. Perhaps the hedge fund has done
Additionally, only the folks at Bridgewater know exactly what the
fund's current exposure to EEM and VWO is. Since April 1, over
$10.1 billion has been pulled from EEM and VWO. That is well above
the $6.4 billion Bridgewater's EEM and VWO end-of-first-quarter
positions were worth, so it is possible the hedge fund has entirely
dumped these downtrodden ETFs from its portfolios.
If not, well, let's just leave that thought unfinished for now.
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