With around $150 billion in assets, Ray Dalio’s Bridgewater Associates is the largest hedge fund in the world. According to the Wall Street Journal, the fund has wagers over $1 billion that the global equity markets will drop within the next three months. Should either the S&P 500 or the Euro Stoxx 50 (or both) decline, the bet would pay off.
WSJ says Dalio’s bet uses put options that have been assembled over months by two major players in the finance industry, Morgan Stanley and Goldman Sachs. Put options give investors the option to sell stocks at a predetermined price by a given date.
The hedge fund isn’t commenting on the specific positions they take, but in a statement to CNBC, Bridgewater says their strategy is to have many interrelated positions that often hedge other positions. “Those change often,” they say, “so that it would be a mistake to look at any one position at any one time to try to deduce the motivation behind that position.”
Regardless of Bridgewater’s motivations behind their $1 billion bet, many investors and strategists are cautious because all three US equity indexes—the S&P 500, the Dow, and Nasdaq—have climbed to historical highs in recent weeks.
The markets reached record highs despite the trade developments between the US and China, who are both circling around a preliminary agreement without getting any closer to each other. And because of the US Senate’s unanimous vote earlier this week to support Hong Kong’s anti-government protesters, doubts about a trade agreement are rising again. Already, bond yields are retracting, and on Wednesday the Dow dropped 258 points after Reuters reported sources saying that a trade deal may not be reached this year.
Ray Dalio’s projections about the future relationship between the US and China are pessimistic, saying that “there is a trade war, … a technology war, [and] a geopolitical war, and there could be capital wars. And how that’s approached is going to determine what our futures are like.”
With those uncertainties in play, it only makes sense that the world’s largest hedge fund would hedge against a drop in the equity markets. Is your investment portfolio protected against a stock market crash? Isn’t it time to do so by adding precious metals that are proven safe havens in times of financial crisis?
If you want to learn how you can add gold and silver to your portfolio, schedule a free consultation with me, and I’ll walk you through how you can invest in precious metals.
About Fred Abadi
In his over 14 years in the financial industry, Fred has focused on commodities and precious metals as investment assets. He has penned several articles on topics such as the commodities markets and investing in precious metals for retirement accounts. Fred has helped thousands of clients safe-guard their investments with gold and other precious metals. He has been with Gold Alliance for over two years as a leading Sr. Portfolio Manager.