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World’s Largest Hedge Fund Is Bullish on Emerging Markets

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Hedge funds are piling into emerging markets

Hedge funds have also been increasingly piling into emerging markets. Hedge funds assets invested in emerging markets rose by $4.7 billion in the second quarter to end 2Q16 at $189.8 billion. This is about 6.5% of the total capital invested in hedge funds globally.

The HFRI Emerging Markets (Total) Index returned 5.2% YTD (year-to-date) as of July 2016. That compares to the HFRI World Index, which has delivered 2.9% YTD.

eem institutional ownership

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According to Kenneth J. Heinz, president of HFR Asset Management, “EM hedge funds have successfully navigated gains in the US Dollar, Japanese Yen, and Swiss Franc, as well as Brexit-related declines in the British Pound Sterling. With developed market rates remaining suppressed by stimulus measures through mid-year, specialized hedged EM exposures represent a compelling opportunity for global investors, benefitting from either continued low rate environment or increasing global inflation.”

Emerging markets command half of Ray Dalio’s portfolio

Ray Dalio’s Bridgewater Associates, the largest hedge fund in the world, currently manages about $212.3 billion in assets. About half of its portfolio is invested in emerging markets. The Vanguard Total Bond Market ETF (BND) commands 30.9% of its portfolio, with another 18.6% allocated to the iShares MSCI Emerging Markets ETF (EEM). Another 0.34% is invested in the iShares MSCI Brazil Capped ETF (EWZ).

Top institutional investors in EEM include Bridgewater Associates, Bank of America (BAC), BlackRock (BLK), Goldman Sachs (GS), and Wells Fargo (WFC).

Within emerging markets, Latin America (ILF) has been a major contributor in driving up emerging market performance.

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