Did you make money in 2019?
If so, you had a better year than Ray Dalio.
Actually, that’s unrealistic. There is probably no sense in which you had a “better” year than Ray. But if the returns on your investments were positive, then you bested Bridgewater’s most prominent fund, the Pure Alpha II, which logged its first annual loss since 2000 and lost money for only the fourth time since inception in 1991.
As you can see, the fund’s 0.5% decline represents a woeful stretch of underperformance versus peers and macro fund indices.
Pure Alpha II returned around 15% in 2018, but has managed just 2% annualized since 2011. Since inception, the fund has returned 11.5% annually.
Back in August, reports indicated that Pure Alpha had fallen 6% YTD thanks to bearish bets on global rates at a time when bond yields tumbled to record lows. Pure Alpha II was down 9% at the time, according to Bloomberg.
Institutional Investor, which first reported Pure Alpha II’s 2019 loss on Tuesday, adds the following somewhat perfunctory color:
Bridgewater stresses in communications to clients that Pure Alpha is designed to produce positive alpha compared with a benchmark of a client’s choosing, regardless of the direction of the markets, by having no systematic biases. The Pure Alpha funds employ Bridgewater’s tactical mix of bets.
The funds are also uncorrelated with the rest of the market. From inception through the end of 2018, it had a 0.19 correlation with equities, 0.15 with bonds, and 0.07 with other hedge fund managers, according to an earlier Bridgewater document.
Pure Alpha especially rewarded investors in 2008, when it gained 9.4 percent in a year that the S&P 500 lost 37 percent. It outperformed the markets to a lesser degree in 2018.
In November, the Wall Street Journal ran a story that suggested Bridgewater was bearish on equities headed into the new year. Specifically, the Journal said the firm had bought puts as part of a $100 billion bet or hedge on the S&P, the Euro Stoxx 50 or both, falling by March.
Dalio was aghast at the reporting, calling it misleading in an irritated LinkedIn post.
Recently, some have juxtaposed Dalio’s considerable fame and success as an author against the flagging performance of his flagship.
“Rarely has a money manager’s stature with the investing public seemed so at odds with their recent record as an investor”, Bloomberg wrote last month. “The biggest hedge fund in the macro game, a $40 billion beast, is looking a lot like an also-ran”.
To be fair, almost everything looked “a lot like an also-ran” in 2019 compared to the S&P 500 and especially the Nasdaq.