Renaissance Technologies, founded by Jim Simons, has been one of the most successful hedge funds of all time and charges outside investors a jaw-dropping 44% performance fee. Between these high fees and good returns, Simons has become a multi-billionaire.
We maintain a database of quarterly 13F filings from hundreds of hedge funds as part of our work developing investment strategies; we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on these results outperformed the S&P 500 by 33 percentage points in the last 11 months.
This database also comes in handy for tracking holdings of individual hedge funds over time to see what they have been buying recently. We have gone through our database of Renaissance's 13Fs (see more of the fund's picks over time) and here are its five largest new positions from the second quarter of 2013:
The investment team bought more than 370,000 shares of Apple (AAPL) during the quarter, making that stock their largest new holding. With both the stock price and company earnings down about 20% from their levels a year ago, Apple currently trades at 13 times its trailing earnings (the stock rallied recently after billionaire activist Carl Icahn claimed to be having discussions with management.) The company is trying to balance a desire for "dry powder" with the prospects of returning more cash to shareholders, including through a large buyback program. Wall Street analysts expect a combination of business improvements and buybacks to result in EPS increases.
Between April and June, Renaissance initiated a position of 3.7 million shares in Citigroup (C). The bank's business continues to recover from the American and European crises, with net income up more than 40% last quarter compared to the second quarter of 2012. Analysts are bullish here as well with projections for 2014 which imply a forward P/E of only 9. Between that figure and the fact that Citigroup trades at a discount to the book value of its equity -- at a P/B of 0.8- it is worth comparing to other megabanks as a potential value stock.
Conagra (CAG) was another of the fund's new stock picks. The $15 billion market cap packaged foods company is valued at 13 times forward earnings estimates, which is low for a food company in the current environment (particularly following Warren Buffett's purchase of Heinz earlier this year.) We'd note that the stock's beta is 0.5 with a dividend yield of less than 3%. At the beginning of 2013 Conagra had purchased Ralcorp (which has driven a temporary bump in the company's financials), and so markets may be concerned about integration risk.
The Renaissance filing disclosed ownership of 1.4 million shares of ConocoPhillips (COP) as of the beginning of July. ConocoPhillips, which is now more of a pure-play exploration and production company following the spinout of Phillips 66, increased its dividend earlier this year and now pays an annual yield of about 4%. Its trailing P/E is 11, with profits expected to show little change next year; this is even to slightly above where integrated oil majors currently trade. Of course, ConocoPhillips and its peers would be expected to be tightly tied to oil prices.
Simons' fund added Comcast (CMCSA) to its portfolio last quarter. Comcast -- which is a media and entertainment company through its ownership of NBC Universal as well as a cable operator -- carries trailing and forward P/Es of 17 and 15 respectively. The company has been growing decently in the past year, with sales up 7% in Q2 2013 versus a year earlier and net margins expanding as well. Even if margins hold steady from this point forward, a 7% earnings growth rate with good cash generation could make Comcast attractive at this valuation.