Here's What the Best-Performing Hedge Fund Is Buying

Every quarter, fund managers have to disclose what they've bought and sold. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at Bridgewater Associates, representing the world's largest hedge fund -- and, in 2010 and 2011, the best-performing hedge fund, according to Forbes. Bridgewater was founded by Ray Dalio, who focuses on macroeconomic factors as he makes his investment decisions -- factors such as inflation, currency exchange rates, and GDP growth. He's clearly skilled, as the size of Bridgewater attests.

It can be hard to find sufficient promising places to park your money when you have so many billions to invest, but Bridgewater partly solves that problem with index funds, recently holding about 44% of its value in the S&P 500 SPDR ETF.

Interesting developments
So what does Bridgewater's latest quarterly 13F filing tell us? Here are a few interesting details:

New holdings include Annaly Capital Management (NYS: NLY) , which invests in mortgages, benefiting from today's low-interest-rate environment. It's drawn many investors with its outsize dividend yield, which recently topped 13%. Of course, some worry how sustainable that will be, as interest rates will inevitably rise. It's true that even a halved dividend would still be sizable, but falling dividends might also depress the stock price.

Among holdings in which Bridgewater increased its stake was NVIDIA (NAS: NVDA) , which has struggled with the PC industry and which took a hit when floods hit suppliers in Thailand. NVIDIA has great potential, though, in shifting its graphics chips to mobile-phone use and in serving emerging markets.

Bridgewater reduced its stake in lots of companies, including Corning (NYS: GLW) and Cliffs Natural Resources (NYS: CLF) . Corning has disappointed many investors with its latest quarterly results and previous ones, as well. Its LCD display glass business hasn't been making it rich, but it does offer investors considerable reasons to be hopeful, such as its fiber-optic cable business. Also, its Gorilla Glass is used in iPhones, iPads, and other devices that are selling like hotcakes.

Cliffs recently reported volume and iron ore pricing below expectations, along with slower steel production in China, but it still seems like an attractively priced stock, destined eventually to benefit from a global economic recovery. And while investors wait, it's been paying out about 1.7% in dividends and hiking that payout strongly.

Another noteworthy reduction in the Bridgewater portfolio was Microsoft. The company hasn't seemed like the leader it used to be in the technology world, but it's still doing plenty of things right.

Finally, Bridgewater unloaded several companies, such as Nuance Communications (NAS: NUAN) . Nuance has benefited from having its speech-recognition software in Apple devices but recently posted some disappointing earnings results. The hit its stock took after that has some of my colleagues pointing out that this may be a great time to consider buying into Nuance. It's developing new business applications, such as in the medical arena, which may boost profits.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

If you're intrigued by companies such as NVIDIA that are poised to make big bucks off new technologies, click into our special free report to see how you can profit from "The Next Trillion Dollar Revolution."

At the time thisarticle was published

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