World’s Biggest Hedge Fund’s Best Stock Picks     

Tracking smart money in the small cap space can be an innovative investment strategy as small cap stocks can provide much higher returns than mid cap and large cap stocks. This is a smart strategy as it is difficult for small retail investors to find information about small cap stocks which are generally not well covered by the media or analysts. Smart money has the resources and expertise to dig out the winners in the small cap space and we can use their public filings to replicate their picks.

Billionaire Ray Dalio is the founder of the world’s largest hedge fund Bridgewater Associates, and his stock picks and broad market views are worth looking into. Ray Dalio thinks that the new Trump administration will have major impact on the economy and markets. He also thinks that the 30 year bond bull market has most likely come to an end and a secular low in inflation has been reached. His preliminary assessment is that the new administration’s policies will be broadly positive for the US economy. Lower regulation, fiscal stimulus and corporate tax reductions will be a positive catalyst for domestically oriented stocks but may not be favorable for multinationals.

At Insider Monkey, we backtested a portfolio of 5 of his largest positions in small-cap stocks and calculated the returns thereof. These stocks returned 1.96% on an average each month from 2006-2012. During the same period S&P 500 Index returned just 0.45% per month. These picks outperformed the market by a whopping 1.5 percentage points per month, or 18 percentage points per year. We describe Ray Dalio’s top small cap picks in the article below.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Bridgewater Associates held 3.3 million shares of Nobel Corporation Ordinary shares (UK) (NYSE:NE) as at the end of third quarter with a value of $20.9 million. The fund bought more than a million shares of Nobel Corporation Ordinary shares (UK) (NYSE:NE) during the quarter with the latter accounting for 0.21% of the former’s portfolio as per their latest round of 13F filing. The company has a market cap value of $1.5 billion. The shares of this oil and gas offshore drilling contractor were up almost 12% in the last three months and have an average rating of hold. For its third quarter results, Nobel Corporation Ordinary shares (UK) (NYSE:NE) reported cash and cash equivalents of $426 million and a loss of $0.23 per share on revenues of $385 million. Some of the other hedge funds having large positions in Nobel Corporation Ordinary shares (UK) (NYSE:NE) at the end of third quarter were Alyeska Management Group and Firefly Value Partners. As at the end of September, 34 funds as per our records held 14.3% of the company’s outstanding stock.

Bridgewater Associates initiated a new position in Endo International plc – Ordinary Shares (NASDAQ:ENDP) during the July-September period. The fund bought 887,293 shares valued at more than $17.8 million during this quarter. Endo International plc – Ordinary Shares (NASDAQ:ENDP) with a market capitalization value of $3.5 billion has seen its shares slide by 74% since January. The major price decline occurred in May as the company revised its 2016 EPS downward to $0.25 and $0.55 per share from $2.25 and $2.60 per share. The company reported revenues of $884 million for its most recent quarter as compared to $746 million in the quarter earlier. This was driven by better than expected performance of its US branded pharmaceuticals segment. The aggregate value of hedge fund holding in Endo International plc – Ordinary Shares (NASDAQ:ENDP) increased by 25% during the third quarter. However, the number of funds in our system having this stock declined to 32 from 36 in the second quarter.

J C Penney Company Inc (NYSE:JCP) was another new addition to Bridgewater Associates’ portfolio according to their latest 13F filing. 1.13 million shares worth more than $10.4 million were bought during the quarter ending September. J C Penney Company Inc (NYSE:JCP) is a holding company selling merchandise and services to customers through its stores and website at jcpenney.com. Though the revenues have almost remained flat as compared to the year ago quarter, the company exhibited improvement in earnings. Loss per share improved to $0.22 as compared to $0.38 in the third quarter of 2015. The stock has an average recommendation of overweight. Among the funds that we track, Jim Simons’ Renaissance Technologies held the most number of shares in J C Penney Company Inc (NYSE:JCP). As per our database, the number of hedge funds holding this stock increased to 32 from 28 in the quarter earlier. These funds held a total of 16.6% of the company’s float as of September 30.

Bridgewater Associates bought 12,400 shares of Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) raising its total holding to 77,981 shares at the end of the third quarter. Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) is a gold mining and exploration company having activities in West and Central Africa. The company reported a healthy net profit margin of 25.4% and an operating margin of 34.5% for the quarter ending September. The stock has returned more than 11% over the last one year, outperforming NASDAQ which was up only 3.2% during the same time. The company also saw John Paulson’s Paulson & Co and Richard Driehaus’ Driehaus Capital  holding biggest positions during the third quarter. The number of Hedge funds holding Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) shares was flat during the third quarter, but the value of their holdings declined to $179 million from $421 quarter over quarter.

Diamond Offshore Drilling Inc (NYSE:DO) was a new addition to Bridgewater Associates’ portfolio during the third quarter. The fund initiated a new position worth ~$7.5 million in the stock after buying 425,690 shares. The stock has returned 18% over the last three months significantly outperforming the broader S&P index, which went up by only 1.1% during the same time. The company has a market cap value of $2.58 billion and reported an operating margin of 15.5% for its third quarter. Cliff Asness’ AQR Capital Management  and Steve Cohen’s  Point72 Asset Management were the two funds having the biggest position in Diamond Offshore Drilling Inc (NYSE:DO). Smart money investment in Diamond Offshore Drilling Inc (NYSE:DO) as per our system increased to $161 million during the quarter ending September from $120 million in the quarter earlier. However, the number of funds owing the stock went down slightly by 1 to 24.

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