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. 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 $38.1 billion in value as of June 30, 2013, 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 Apple and Citigroup. Other new holdings of interest include audio chip maker Cirrus Logic (NASDAQ:CRUS), which recently took a tumble upon reporting disappointing quarterly results and guidance. Bears worry about its reliance on Apple, which accounted for some 82% of revenue in its last fiscal year, though Cirrus has been lining up other customers. They also fear that lower-priced iPhones could hurt Cirrus and think its growth is due to slow. Still, the stock has fallen by close to 50% over the past year, leading some, such as Renaissance, to view it as a good buy.
Among holdings in which Renaissance Technologies increased its stake was security and intelligence services specialist Science Applications International (UNKNOWN:SAI.DL). The technology company does a lot of business with the military, so it has been vulnerable to spending cutbacks and the sequester. It's planning to split itself in two this year, separating much of its government work from its other work. The company has secured several new contracts recently, with the Pentagon, and with a dividend yield of 3% and a recent and forward P/E near 11 , some see it as attractive.
Renaissance Technologies reduced its stake in lots of companies, including Bank of Ireland (NASDAQOTH:IREBY) and Renren (NYSE:RENN). Stock in the Bank of Ireland is not for the faint of heart, as it plummeted nearly 100% not so long ago, but has more than doubled over the past year. It has emerged in decent shape after the recent banking crisis in Ireland, though with the government now holding a stake in the company and with Ireland's economy still struggling. Earlier this month, management noted that the company is close to profitability, and has been working on getting there, restructuring its balance sheet and reducing loan losses.
Chinese social networking specialist Renren got a big boost recently, on talk that its Nuomi daily deals service might be acquired by Chinese search titan Baidu. These are heady days for some Chinese Internet companies, with mobile shopping there recently jumping 181% over the previous year's level. Renren gets much of its revenue from social gaming, and some would like to see it grow other income streams, such as online advertising. It is, after all, not yet profitable. Management recently lowered projections, too, as the company prepares to grow in the Android market.
Finally, Renaissance's biggest closed positions included Caterpillar and Occidental Petroleum. Other closed positions of interest include network storage specialist NetApp (NASDAQ:NTAP), which initiated a dividend this year, and is yielding 1.4%. The company's operating system, ONTAP, has been rated well and has gained market share. Some wonder whether NetApp might end up acquired by another major data player, while others are hoping that an activist investor might help the company's prospects. Meanwhile, the stock is significantly shorted. Its forward P/E is just 16, though, less than half the company's five-year average, and it still looks attractive to some, in part due to strong free cash flow. NetApp is set to report its latest quarterly results tomorrow.
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.