$50 Billion Quant Fund Is Making New Bets On These Stocks

Renaissance Technologies is probably the best quant hedge fund in the market. Their Medallion Fund literally prints $1 billion to $3 billion a year and, naturally, it doesn’t accept any outside money. The fund was started in 1982 by James Simons, a mathematician and code breaker. You can watch this rare interview if you aren’t familiar with Jim Simons or RenTech.

Renaissance Technologies introduced new funds that accept outside money after it closed the Medallion Fund to outside investors. These funds also hold stocks for several months or in some cases more than a year. These strategies are designed to outperform the market by decent margins (a few percentage points per year). Also some of the positions in these funds are very large positions often reaching $250 million or more. These strategies target institutional equity investors and Renaissance’s fund implementing these strategies is called Renaissance Institutional Equities Fund (RIEF). This fund was started in mid-2005.

Well, we analyzed the performance of RenTech’s top 5 large-cap stock picks covering the years 2008 through 2012. These stocks returned 0.74% during this period which included the 2008-2009 collapse of the financial markets. S&P 500 Index returned only 0.29% during this period. So, investors would have been able to outperform the market by more than 5 percentage points a year by simply imitation RenTech’s top 5 stock picks. In this article we will take a look at the 5 large-cap stocks that RenTech was buying during the third quarter.

Renaissance Technologies was actually betting on technology stocks holding during the September quarter as it heavily bought Alphabet Inc (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT). At the very same time, it also placed bets on pharma stocks such as Pfizer Inc. (NYSE:PFE) and Bristol-Myers Squibb Co (NYSE:BMY). The fund also invested in Costco Wholesale Corporation (NASDAQ:COST) during the quarter.

Alphabet Inc (NASDAQ:GOOGL) stock dipped 1.7% so far this year. For the quarter ended on 30th September, 2016, RenTech boosted its holding of the stock by 1,005% to 524,048 shares. The fund’s holding amounted to $421 million. It also had another $205 million invested in GOOG shares. Of the hedge funds in our database, 200 hedge funds are currently invested in either GOOGL or GOOG shares in their portfolio at the end of September. Alphabet Inc. recently announced that it will bar fake-news websites from using its ad-selling software. The move may seriously hit the revenue stream for such websites, forcing them out of the market.

Microsoft Corporation (NASDAQ:MSFT) stock returned 9.6% this year through December 1st. It is likely that Renaissance Technologies boosted its holding of the stock by 188% in early July when the shares were trading in low 50s. The fund held $351 million worth of Microsoft stock at the end of the third quarter. Microsoft is one of the most popular stocks among billionaires and hedge funds. Nearly a fifth of all hedge funds, 126 hedge funds in total, from our database had positions in Microsoft, with total holdings of more than $18 billion at the end of September. Collectively hedge funds owned 4.7% of Microsoft’s outstanding shares. Recently Microsoft reported that it will start offering its Visual Studio program for Mac platform. The move will help the company in boosting its market share. The new announcement also marks Microsoft’s transition towards cloud based business.

Costco Wholesale Corporation (NASDAQ:COST) isn’t a popular stock like Alphabet or Microsoft, but this didn’t stop RenTech’s algorithms to invest $318 million in the retail giant. The number of funds from our hedge fund database that are long Costco Wholesale Corporation stood at 50 at the end of September. This number was only 39 at the end of June. This means a bunch of hedge funds actually initiated brand new positions in Costco Wholesale Corporation in Q3. Costco Wholesale Corporation reported its October month sales at $9.11 billion, up 4% from $8.78 billion a year ago (To learn more about department store stocks, read our article here).

Pfizer Inc. (NYSE:PFE) is the fourth stock in our list which is flat for the year. The company offers a dividend yield of 3.71%. Renaissance Technologies boosted its holding of the stock by 390% during the September quarter to 8.56 million shares. The market value of the holding stands at $290 million and forms 0.51% of Renaissance Technologies’ portfolio. 94 hedge funds from our database have positions in Pfizer, with total holdings of about $5.66 billion at the end of June. In contrast to RenTech other hedge funds dumped the stock and the total number of hedge funds with bullish positions in Pfizer declined to 83 by the end of September. The company announced its collaboration with National Cancer Institute for studying three immunotherapy agents for multiple cancers. Pfizer will work with NCI’s Center for Cancer Research for arranging and conducting preclinical and clinical trials.

Bristol-Myers Squibb Co (NYSE:BMY) stock dipped more than 20% this year. The stock was trading above $75 mid-July and its stock price dipped below $55 by the end of September. RenTech’s algorithm’s probably detected a buy signal after the large losses and boosted its BMY position by 782% during the quarter. The investment firm held 4.74 million shares of Bristol-Myers Squibb worth $255 million at the end of September. 61 hedge funds we track hold about $2.37 billion of Bristol-Myers Squibb stock as on the end of June quarter, in comparison to 59 funds holding stock worth $2.28 billion at the end of September. More recently the company reported preliminary data from a phase I/II open-label study, CheckMate-032, on Opdivo, for treating locally advanced or metastatic urothelial carcinoma (mUC) in patients who have been previously treated with platinum-based therapy. The results were largely positive with promising efficacy and safety results.

If you want to outperform the market by buying large-cap stocks RenTech’s portfolio is one of the best places to check out to come up with promising investment ideas.

DISCLOSURE – NONE