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 hedge 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. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.
Q2 2011 update
Renaissance Technologies, founded by James Simons, is known for its quantitative approach to investing. Indeed, as 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.
Why should you look at Renaissance Technologies' moves? Estimates put the returns for the fund manager's flagship Medallion Fund at about 35% annually for more than two decades.
The total market value of Renaissance Technologies' disclosed equity holdings as of June 30, 2011 -- the latest quarter for which data is available -- was $25 billion across more than 2,700 holdings. The fund company's 10 largest positions and associated changes in number of shares held as of June 30, 2011 were:
Apple (NAS: AAPL) -- increased 135%.
Eli Lilly (NYS: LLY) -- increased 59.5%.
Lorillard (NYS: LO) -- increased 5.8%.
Intel (NAS: INTC) -- increased 22.3%.
Google (NAS: GOOG) -- increased 182.4%.
Procter & Gamble (NYS: PG) -- new.
Philip Morris International (NYS: PM) -- increased 160.5%.
Colgate-Palmolive (NYS: CL) -- increased 37.5%.
ExxonMobil (NYS: XOM) -- increased 65.6%.
Novo Nordisk (NYS: NVO) -- increased 26.3%.
During the quarter, Renaissance Technologies also increased its position in Lockheed Martin and Corning (NYS: GLW) , among others. Among the stocks that it sharply reduced its exposure to were Sotheby's and Quantum. Also, companies that the fund family sold out of entirely include Baidu and Target.
During the quarter, Corning impressed the market with big gains for its fiber optics, filtration devices, and new Gorilla Glass. Since then, though, its cash flow has been less than impressive, worrying some investors.
Why would Renaissance sell market darling Baidu? The Chinese search-engine giant's profitability has slipped lately, though my colleague Rick Munarriz thinks the company's simply trading short-term results for long-term growth.
Selected Q2 2011 commentary
Renaissance Technologies has 22% of its assets in the technology sector, and 21% in services sector, with health care and financials comprising another 13% and 9% of the portfolio, respectively. The distribution hasn't changed much in recent quarters.
Here's where the firm is winning, losing, and making new bets:
Lorillard was a big winner in the quarter, rising about 16%. However, interested investors should factor in the shrinking percentage of Americans who smoke; rising taxes on tobacco; and the possibility of troublesome new regulations, including newly mandated gruesome warning photos on cigarette packaging. Lorillard has a four-star (out of five stars) rating at Motley Fool CAPS.
Google lost value for the fund during the quarter, dropping about 14%. At the time, some investors questioned the company's Android, Chrome, and social media strategies. But most folks have remained bullish about its overall prospects, and even consider it a major tech bargain. The company has a four-star rating in Motley Fool CAPS.
Among Renaissance's top 20 new additions (out of the more than 1,000 new stocks among its holdings) are Level 3 Communications (NAS: LVLT) and Hudson City Bancorp (NAS: HCBK) . Level 3 has looked attractive thanks to its partnership with Netflix, among other things, but it's also saddled with a lot of debt. Hudson City is drawing more fans as its credit quality improves, but it recently posted a big revenue drop.
We should never blindly copy any investors' moves, no matter how talented they may be. 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.
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At the time thisarticle was published Longtime Fool contributor Selena Maranjian owns shares of Procter & Gamble, Netflix, Apple, Intel, Corning, Google, and Baidu, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. 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.
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