Here's What Some Big-Time Quants Have Been Buying
Every quarter, many money managers have to disclose what they've bought and sold. 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.
Renaissance's stock portfolio totaled a whopping $28.5 billion in value as of March 31, 2012, 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:
New holdings include Rite Aid (NYS: RAD) and E-Commerce China Dangdang (NAS: DANG) . Drugstore chain Rite Aid has been struggling for a long time, operating in a low-margin business with tough competition from the likes of Walgreen and CVS Caremark. Some are interested in the company because of speculation that a rival may buy it, while others steer clear due to rising debt and regular losses.
Dangdang is seen as a Chinese version of Amazon.com, reportedly the nation's largest bookseller that's also selling plenty of other items now. But Dangdang faces more formidable competition than Amazon did as it grew, and China's near-term growth seems to be slowing. If you decide to invest in it, you should prepare for it to put growth ahead of profits for now, following the Amazon playbook.
Among hundreds of holdings in which Renaissance increased its stake was DryShips (NAS: DRYS) , which specializes in deepwater drilling and shipping. Weak pricing and a glut of shippers has hurt the company recently, while it was helped by a backlog of drilling contracts. Still, despite a recent upgrade from Wall Street, it sports a lot of debt and has ties to shaky Greece.
Renaissance reduced its stake in gobs of companies, including New York Community Bancorp (NYS: NYB) . The bank may have slipped 16% over the past year, but it has recently been offering an 8% dividend yield, which is rather hefty. Per management, the company has been focusing on multifamily lending while being risk-averse and maintaining a high efficiency ratio. It has been busy making acquisitions, too, having made 10 since 2000. Note that while the dividend is nice, the payout ratio is near 100%, suggesting that there isn't a lot of room for growth at the moment.
Finally, Renaissance unloaded lots of companies, such as Inergy (NAS: NRGY) . This company, recently yielding 8.6%, is a master limited partnership, getting special tax treatment. It's selling its retail propane business, which can help it pay down its sizable debt, but that also limits its potential. It's also selling its salt-mining business. The company has been shifting its focus from serving retail customers to being more of a natural-gas middleman, transporting and storing the product.
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.
If you'd like to invest in a young and powerful Internet-focused business, but are wary of E-Commerce China Dangdang, check out our special free report, "Forget Facebook -- Here's the Tech IPO You Should Be Buying."
At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Amazon.com, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.