We’re up 6.7% in 2 weeks while the S&P was down 3.2% in the same period

So far our algorithmic trades are doing quite well, especially when compared to the major global sell-off in the past few days.   As of today we’re up 6.75% on our picks, this after being up as much as 10% as of Friday.  Not bad when you consider that the S&P index lost 3.2% in the same period.


Our strategy of following the big players is paying off, and this has allowed us to spot the next trend.  In the case of our picks, all of these stocks were beaten down off their highs, and with a large fund such as Vanguard taking new positions in these last quarter leads us to believe the sell-off was a bit overdone.   If you manage billions, or trillions in the case of Vanguard, you never ever buy at market highs – that’s where you do your selling.  Shifting that much money around requires that new long positions are entered in at the floor.

Which leads us to a minor concern we have about Bridgewater – the largest private hedge fund in the world.   As of Sept. 30 they had roughly 11.5 Billion invested in equities – that’s less than 10% of their total $122 Billion in assets they have under management… Not a very large vote of confidence in the market from Bridgewater, even considering the asset class diversification required to protect their fund (remaining assets could be in assets outside of equities such as foreign currencies, real estate, equity futures and options).

But the striking thing about Bridgewater’s holdings is, out of that 11.5 billion invested in the market, a whopping 90% of that is invested in Financials. 

Bridgewater Holdings as of 9/30/2013 – big bets on Financials

Drilling down into these holdings we see the following top allocations:

SPY etf – 30%  (this is categorized under financials)

VWO – Vanguard Emerging Markets ETF – 29%

The remaining holdings are a collection of who’s-who names in banking and insurance.

The curious part of these positions is two-fold:

1.  The market sell-off we saw this week saw emerging markets and the S&P swoon.  If Bridgewater is still holding these positions at in these sizes and proportions, they are in trouble.

2.  The reporting date for these positions is quarter end September 30, 2013, so the positions could have changed since then.

A lot can happen in 3 months, but it is unlikely that Bridgewater dumped their $20 million shares of SPY into the open market.  Profit taking appears that it could be the order of the day, and January is always a good time to lock in profits and avoid having to pay any capital gains tax on those holdings until next year.

The next reporting date for fund holdings is Feb. 17 for the quarter end Dec. 30.  Until then, we will be scanning some names in this sector and if the quantitative tea leaves align will be taking positions in some of them.   Should Bridgewater keep their 90% Financials allocation in the next reporting period, that should be the green light to buy this sector with prejudice.