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Every quarter, many money managers have to disclose what they've bought and sold via 13-F filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at the Renaissance Technologies hedge fund company, founded by James Simons and known for its quantitative approach to investing. Indeed, Simons explained in 2007 that, "We hire physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance... We haven't hired out of Wall Street at all." The company's most well-known fund is the Medallion Fund. Interestingly, most of the company's assets belong to employees of the firm, and outside investors are generally turned away.
Why should you look at Renaissance Technologies' moves? Well, it's hard to find performance data for it, but in his 2009 book Blunder: Why Smart People Make Bad Decisions, Zachary Shore noted that Renaissance's flagship Medallion fund "has yielded an average 38% annual return since its inception in 1988. The fund has lost money only in a single year, 1989, when it dropped 4.1%." That's so remarkable that some have mused that it's either a Madoff-like Ponzi scheme or a simply amazing hedge fund.
The company's reportable stock portfolio totaled $32.5 billion in value as of September 30, 2012, with several thousand holdings. (Concentration, thy name is not Renaissance Technologies!)
So what does Renaissance's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Cisco Systems (Nasdaq: CSCO ) and Costco (Nasdaq: COST ) . Other new holdings of interest include Energy Transfer Partners (NYSE: ETP ) and SandRidge Energy (NYSE: SD ) . Energy Transfer Partners has disappointed some by not hiking its dividend in quite a while, but my colleague Aimee Duffy thinks that could change. The company has been investing heavily in projects that can pay off in the years to come and that also diversify its business. SandRidge has been the subject of much shareholder opposition and support lately, with some big investors calling for the ousting of its CEO. It doesn't help that SandRidge CEO Tom Ward has close ties to Chesapeake Energy (NYSE: CHK ) , itself a paragon of poor governance.
Among holdings in which Renaissance increased its stake was Silver Wheaton (NYSE: SLW ) . The mining concern has a beautiful business model, financing other miners in exchange for a cut of their proceeds. It's also growing rapidly and sports some fat profit margins.
Renaissance reduced its stake in lots of companies, including coal company Peabody Energy (NYSE: BTU ) . Unlike many rivals, Peabody has been profitable, with rising revenue and earnings. The largest U.S. coal producer, it has even been called "the victorious King of Coal." The company took on a lot of debt to buy operations in Australia, but that positions it well to supply growing Asian demand -- though coal prices remain low. There's growing opposition to coal, and some think that its glory days are over. If you're bullish on coal, though, consider Peabody.
Finally, Renaissance's biggest closed positions included Kraft international spin-off Mondelez (Nasdaq: MDLZ ) and Gilead Sciences (Nasdaq: GILD ) . Other closed positions of interest include rural telecom specialist Windstream (Nasdaq: WIN ) . The company recently hit a 52-week low and has lowered its projections. Given that its free cash flow is less than its dividend payout, its massive 12% yield seems threatened. Meanwhile, revenue has been growing while net income has been shrinking. Some insiders have been buying, but their purchases haven't been massive.
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. 13-F forms can be great places to find intriguing candidates for our portfolios.
If you are looking for a company whose success is determined by the metals market, but without involving itself in the risks of physically mining the metals, then Silver Wheaton provides a unique play on the future of silver. SLW chooses to finance the mining of silver; it has grown sales and net income every year since 2008, and has also increased competitive advantages over its limited peer group. More details about our outlook for Silver Wheaton can be found here in our Motley Fool analyst report.