Back in January, Bloomberg reported that Bridgewater’s most prominent fund, the Pure Alpha II, logged its first annual loss since 2000 last year. (The news was originally tipped by Institutional Investor.)
It was the only the fourth time since 1991 that the fund lost money.
Unfortunately, that subpar showing (a 0.5% decline) did not measure up well against peers, let alone the S&P 500 or any bond index you care to consult.
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.
Well, according to the ubiquitous “people familiar with the matter”, Pure Alpha II was down around 13% in March through Thursday of last week, bringing its total loss for 2020 to around 20%.
Obviously, it would be handy to know how the fund performed on Friday, a day when stocks powered more than 9% higher following the previous day’s harrowing losses, the worst since 1987.
If you’re wondering how Pure Alpha II’s “YTD through Thursday” performance stacks up, the following visual is a rough approximation, though I want to make it absolutely clear that the following is by no means “apples-to-apples” and lacks almost any semblance of nuance.
“We did not know how to navigate the virus and chose not to because we didn’t think we had an edge in trading it. So, we stayed in our positions and in retrospect we should have cut all risk”, Dalio told FT.
Apparently, Bridgewater was positioned for rising stock prices and a bond selloff going into March.
But, as you might recall, Dalio may have had some puts. 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.
In January, during remarks to CNBC in Davos, Dalio reprised his infamous “cash is trash” call from 2018.
“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws”, Dalio said, on the eve of the February 2018 equity correction. “[You’re] going to feel pretty stupid” if you’re holding cash”, he chided.
On January 21 of this year, speaking to the exact same CNBC anchors, Dalio asked: “What do you jump into when you jump off the [equities] train?”. He was responding to Andrew Ross Sorkin, who asked whether it’s a good idea to jump aboard along with the rest of humanity amid what was quite clearly a 2018-esque melt-up in stocks.
“You can’t jump into cash”, Dalio exclaimed. “Cash is trash”.
For what it’s worth, I called that “something right out of Phil Connors’s Punxsutawney nightmare” – a reference to Harold Ramis’s classic Groundhog Day.
Fast forward less than two months and cash is the furthest thing from “trash”. In fact, it’s king.
“Money Market funds absorbed a massive $136.9 billion in inflows… the highest ever recorded, benefitting from the highly volatile and risk-off sentiment in the market”, Deutsche Bank wrote Friday, in a positioning update.
“We’re disappointed because we should have made money rather than lost money in this move the way we did in 2008”, Dalio said.
Pure Alpha II fell 10.5% in April of 2008 (its worst month on record), but closed the year up 9.4%, outperforming the S&P by an astonishing ~47% for the year.