At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.
Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets.
Q3 2011 update
The Renaissance Technologies hedge fund company was founded by James Simons, and is 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 total market value of Renaissance Technologies' disclosed equity holdings as of Sept. 30, 2011 -- the latest quarter for which data is available -- was $23.5 billion across more than 2,500 holdings. The company's 10 largest positions and associated changes in number of shares held as of Sept. 30, 2011 were:
Apple -- reduced 21%.
Philip Morris International
Lorillard -- increased 2%.
McDonald's -- increased 25%.
Eli Lilly -- reduced 31%.
Chipotle Mexican Grill -- increased 33%.
Microsoft -- new.
priceline.com -- increased 24%.
Novo Nordisk A/S -- increased 21%.
Intel -- reduced 25%.
During the quarter, Renaissance Technologies also increased its position in Berkshire Hathaway and Netflix, among others. Among the stocks that it reduced its exposure to were Corning
Many investors expect Berkshire Hathaway to grow as the economy recovers, due to its heavy investments in railroads and housing-related companies, among others. Corning has a lot of promise, making glass screens for everything from LCD TVs to smartphones. Its Gorilla Glass has been especially successful, but some investors seem to be too impatient for this stock, Renaissance among them. Low interest rates have depressed banks such as Hudson City, and with rates seeming like they'll stay very low for the foreseeable future, Renaissance investors are likely looking for greener pastures.
Shares of Elan more than doubled over the past year, which may have some investors seeing insufficient upside from here. Still, with its blockbuster MS drug Tysabri and a recent restructuring, others are bullish on the company.
Selected Q3 2011 commentary
Renaissance Technologies has a very diverse set of investments. Here's where the firm has been winning and losing and making new bets:
McDonald's was a big winner in the third quarter, rising 5% when the S&P 500 sank by about 14%. As big as it is, the company continues to grow its revenue, expanding its global footprint and expanding its offerings, too, with recently launched fancy coffees and oatmeal in the U.S. Some worry that the stock may have gotten ahead of itself a little, though. The company has a five-star (out of five stars) rating at Motley Fool CAPS.
Netflix, didn't do so well, dropping more than 56%. Once a shooting star, the stock tumbled due to various management blunders such as its announcing a separate "Qwikster" business -- which was later nixed. Many have lost faith in the company, but others see it as a bargain at recent levels. The company has a two-star rating in Motley Fool CAPS.
While adding shares of plenty of large companies, such as Annaly Capital Management
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.
Longtime Fool contributor Selena Maranjian owns shares of McDonald's, Berkshire Hathaway, Corning, Apple, Microsoft, Intel, Netflix, and Annaly Capital Management, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Philip Morris International, Intel, Apple, Annaly, Microsoft, Berkshire Hathaway, and Chipotle, and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Corning, Intel, Philip Morris International, McDonald's, Chipotle, Elan, Netflix, Berkshire Hathaway, Apple, Microsoft, and priceline.com; creating a bear put ladder position in Lorillard; and creating bull call spread positions on Intel, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.