When most hedge funds collapsed in the first half of 2022, Bridgewater's flagship fund outperformed it | Paragon Alpha

When most hedge funds collapsed in the first half of 2022, Bridgewater's flagship fund outperformed it

By Matea Gucec

Bridgewater is now the largest hedge fund in the world, managing around $150 billion in assets. According to unidentified Insider sources, the company's flagship fund, Pure Alpha II, was able to reward investors 32% during the first half of 2022.

The sharp spike coincides with a persistent bear market that puts most hedge firms in a precarious position. According to statistics from Hedge Fund Research, equity-focused hedge funds have lost on average close to 5% of their value so far this year.

Although Dalio is no longer Bridgewater's CEO, he continues to hold the positions of chairman of the board of directors and co-chief investment officer. The hedge fund is now led by co-CEOs Mark Bertolini and Nir Bar Dea.

Bridgewater's stellar first-half success was primarily attributed to a highly visible short bet against European corporations.

According to Bloomberg, Dalio and company disclosed in June that they had increased their wagers against European companies to a staggering $10.5 billion. The company now holds short positions in 28 European corporations, including Adidas and the German chemical and software giants BASF and SAP SE.

The tactic has so far shown to be quite successful. The Euro Stoxx 50 Index, which is down almost 21% year to date, includes all of the shorted businesses, and several of the most frequently shorted names have seen their stocks fall this year, generating significant gains for Dalio's Pure Alpha II fund.

Adidas' stock has dropped 41% year-to-date, BASF has down 42%, and SAP SE has dropped 36%, to mention a few.

As soon as Dalio heard that the Eurozone's economic development was slowing down due to increasing inflation, he started shorting European stocks. Additionally, as the conflict in Ukraine rages on, Europe's reliance on Russian gas has contributed to an energy crisis on the continent, with the German government issuing a warning that natural gas supplies may need to be restricted if Russia completely cuts off its supply.

"Even if we can't feel it yet, a gas crisis is now underway. Gas is now a rare resource, according to Habeck, who also noted that if Russian supply is interrupted, "the entire market is at risk of imploding."

Analysts aren't surprised that Dalio has profited significantly in a short period of time by exploiting the unrest in Europe.

Since its debut in 1991, Bridgewater's flagship fund has managed to earn an average annual return of 11.4 %, although the calm sailing this year follows some choppy waters in previous years.

The Pure Alpha II fund lost 12.6 percent just in 2020, and it only generated an 8 percent return in 2018, while the benchmark S&P 500 index had a roughly 27 percent increase.

While Pure Alpha II's top five holdings have underperformed this year, including Proctor and Gamble, iShares' Core MSCI Emerging Markets ETF, iShares' MSCI Emerging Markets ETF, and SPDR's S&P 500 ETF Trust, Dalio has been able to recover significantly thanks to his short bets.


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