Every quarter, many money managers have to disclose what they've bought and sold, via "13F" 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. 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 a whopping $34.3 billion in value as of Dec. 31, 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 General Electric and PepsiCo. Other new holdings of interest include InterOil (NYSE:IOC). InterOil is an interesting beast -- it drills for natural gas in Papua New Guinea. It has major expansion plans, though, including building an export facility, and it's looking for partners to help finance its growth. Its reserves have a lot of potential, but they're not all proven. There's risk in this company, but Renaissance seems to think the possible rewards outweigh that.
Among holdings in which Renaissance Technologies increased its stake was Micron Technology (NASDAQ:MU). Micron is hoping that growth in tablets and smartphones, not to mention laptop sales, will drive demand for memory chips. Some expect the company to post strong results soon due to surging DRAM prices. But analysts at Lazard recently downgraded Micron, expecting DRAM prices to level off.
Renaissance Technologies reduced its stake in lots of companies, including Altria (NYSE:MO). The domestic tobacco giant's future doesn't look as rosy as its past, due to a shrinking smoker base in the U.S., more folks moving to discount cigarettes , and rising taxes and regulations. Respected analysts at Steifel Nicolaus recently rated the stock a buy, but my colleague Rich Smith thinks they're wrong. Altria sports a dividend yield of 5.2%, and its recent results have been strong, with solid management projections.
Finally, Renaissance's biggest closed positions included Boeing and Wells Fargo. Other closed positions of interest include Halcon Resources (NYSE:HK) and Sandridge Energy (UNKNOWN:SD.DL). Oil and gas company Halcon has been growing by acquiring assets such as shale-field properties and is expected to grow by 30% annually in the next few years. It operates in the promising Bakken region, for example. The company recently reported 2012 net daily production up 128% over year-ago levels and proven reserves up by 417%.
Fellow energy concern SandRidge has been struggling lately, leading activist Dinakar Singh at TPG-Axon to push for some big changes such as the ouster of the company's CEO and a more coherent strategy. Many investors are wisely steering clear, but some see significant potential value, if the company can get its act together. In its latest quarter, revenue surged, but that didn't translate to bottom-line growth.
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.