Ray Dalio's Bridgewater: This is not a bubble

Ray Dalio, Bridgewater Associates
Scott Mlyn | CNBC
Ray Dalio, Bridgewater Associates

The largest hedge fund manager in the world is convinced the market is not a bubble about to burst.

"We think asset prices are high and, as a result, the future expected returns of passive investing are likely to be low. But ... we do not see current conditions as a bubble," Greg Jensen and Jacob Kline of Bridgewater Associates wrote in a private note to clients on May 1 obtained by CNBC.com.

Jensen is co-chief investment officer of Bridgewater along with founder Ray Dalio and Bob Prince. The Westport, Connecticut-based firm manages $169 billion for institutional clients like pensions and endowments and its economic views are widely followed and respected.

Factors arguing against a bubble are, according to the authors:

  • Prices have increased quickly, but not as fast as other bubbles
  • Valuations are still in "normal territory"
  • Leverage isn't a major driving force of prices and overall lending is still "modest"
  • There aren't any significant new investors entering the market
  • U.S. retail and foreign investors have "modest" positions
  • Corporate stock buybacks are sustainable
  • Economic sentiment is "less ebullient" than other bubble periods

In short, Bridgewater doesn't think the situation today is analogous to the Roaring '20s, the dotcom boom of the late 1990s or the housing-fueled bubble of the mid-to-late-2000s.

The letter does note "frothy" bullish sentiment and says there are "pockets of froth" in high-yield bonds and commercial real estate. But even those "aren't of a magnitude that amount to a bubble."

"Assets not being in a bubble doesn't mean they can't decline and aren't vulnerable to surprises, but it does make a cascading pop in asset prices much less likely," the authors added.

Read MoreDalio: This IS 'secular stagnation'

A spokesman for Bridgewater declined to comment.

While Bridgewater doesn't think there's a bubble, Dalio has said he believes the U.S. is in a long-term period of slower growth—so-called secular stagnation.

Dalio believes the Federal Reserve and other central banks have limited policy tools given already near-zero interest rates. That means less lending, and therefore less investment and lower economic growth. Bridgewater is avoiding "any concentrated bets" as a result.

Read MoreDalio: We're 'cautious' ahead of Fed move

The firm's main macroeconomic hedge fund, Pure Alpha II, is up about 13 percent net of fees this year through April. It's annualized return since inception in December 1991 is 13.5 percent, according to performance figures obtained by CNBC.com.