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: "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 $41.2 billion in value as of Sept. 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 General Electric and Walt Disney. Other new holdings of interest include Micron Technology (NASDAQ:MU) and Keryx Biopharmaceuticals (NASDAQ:KERX). Micron shares have surged some 255% over the past year, in part on enthusiasm over its acquisition of Japanese company Elpida. That buy made it the world's second-largest DRAM maker, with greater pricing power and an enhanced relationship with Apple. Micron Technology recently announced a new, higher-performing processor architecture that's likely to compete with Intel offerings. The company's recently reported fourth quarter was strong, but it received a downgrade anyway. With its forward P/E ratio near 10, many still see great value in the stock.
Keryx Biopharmaceuticals (NASDAQ:KERX) has been on a tear, quintupling in price over the past year. Much of the excitement is over its Zerenex drug, which treats kidney disease. Keryx recently posted strong mid-stage clinical-testing results for Zerenex, and it's looking to expand the drug's applications and approvals, too. If Zerenex gains new chemical entity status, that will also help it competitively. Keryx Biopharmaceuticals has potential, but it's worth remembering that it's still reporting losses and doesn't have a pipeline rich with many promising drugs.
Among holdings in which Renaissance Technologies increased its stake were AK Steel Holding (NYSE:AKS) and PotashCorp (NYSE:POT). AK Steel, along with its brethren, has suffered through an extended global economic slump, but things are turning around, with the stock up some 47% over the past year. Bulls point to a recovering auto industry and price hikes, and Goldman Sachs recently waxed positive on the stock. Analyst Michael Gambardella at JPMorgan Chase is bearish,, though, seeing a rising supply and foreign competition. AK Steel's pension and health care obligations to retirees present another headwind.
Fertilizer giant Potash, along with its peers, has been challenged by an oversupply in the market and by the breakup of a key Russian cartel. Its last quarter featured revenue down 29% and earnings down 45%. Increases in the price of natural gas, a key production input, also present concerns. Still, over the long run, fertilizer companies hold their appeal due to our growing global need for food. Bulls like PotashCorp's low-cost structure and improving profit margins, along with declining debt to equity. PotashCorp recently yielded 4.3%, and its dividend has been growing briskly in recent years.
Renaissance Technologies reduced its stake in lots of companies, including Taiwan-based semiconductor specialist Himax Technologies (NASDAQ:HIMX). That's likely in part due to valuation concerns, as the stock has surged more than 370% over the past year (though its forward P/E ratio is still only around 15). All is not rosy for Himax Technologies, though, as it has repeatedly posted disappointing quarterly earnings. Still, bulls have high hopes for its contributions to the head-mounted displays of Google Glass. In the meantime, Himax's large-panel display-driver business is declining. Patient believers can collect a 2.7% dividend yield from Himax Technologies while they wait.
Finally, Renaissance's biggest closed positions included Apple and Microsoft.
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.