Best Stocks to Buy According to Fastest Growing Large Quant Fund

Co-founded by John Overdeck and David Siegel, Two Sigma Advisors is one of the largest quant funds in the world. This year has been a roller-coaster for hedge funds as they have seen different performances, with some being in the flat to double-digit losses bracket while others posted double-digit returns. However, 2016 has been a good year for Two Sigma Advisors with the fastest growing fund returning over 10% to investors. The data-driven quantitative hedge fund has been consistently posting good returns in recent years, while other hedge fund strategies have struggled. Generally, quant funds have performed better than macro funds some of which saw significant losses this year. Even long/short equity funds mostly showed poor performance as returns were affected by high market valuations and ultra-low interest rates. We look at the top holdings of Two Sigma Advisors, which is currently managing assets over $38 billion.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Amazon.com, Inc. (NASDAQ:AMZN) was the top stock pick of Two Sigma Advisors at the end of September. The fund increased its position by 23% to 356,601 shares worth $298 million during the third quarter. Amazon.com, Inc. (NASDAQ:AMZN) has been a favorite of most of the top hedge funds in 2016. Other funds with substantial stakes in the company include Viking Global, Fisher Asset Management, Tiger Global Management and Lone Pine Capital. The stock has gained more than 12% year-to-date outperforming the broader NASDAQ, which is around 9% in the green. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock amongst the smart money funds that we track at Insider Monkey. At the end of the third quarter, 150 funds held shares worth $20.79 billion in aggregate, versus 145 funds owning $19.82 billion worth of shares a quarter earlier.

Alphabet Inc (NASDAQ:GOOGL) which was the second-largest holding of Two Sigma Advisors according to their last 13F filing, is also the fourth most popular stock among the funds in our database, with 137 investors holding $14.78 billion worth of stock as of the end of September. Two Sigma Advisors held 365,160 shares worth $293 million held at the end of the third quarter. Other funds with substantial stakes in Alphabet Inc (NASDAQ:GOOGL) included Andreas Halvorsen’s Viking Global and Ken Fisher’s Fisher Asset Management. While the former held 1.96 million shares worth $1.57 billion, the latter owned 1 million shares valued at $812 million. Recently, the company has created an independent self-driving car unit, Waymo, which is expected to become profitable sooner than the market thinks adding fuel to Alphabet Inc.‘s (NASDAQ:GOOGL) growth cycle.

In Home Depot Inc (NYSE:HD), Two Sigma Advisors acquired 122,996 shares during the third quarter and held 1.9 million shares worth $245 million at the end of September. The stock has appreciated by around 6% over the last six months and sports a dividend yield of 2.04%. Currently trading close to its 52-week high, the stock has an average ‘Overweight’ rating among analysts. For the third quarter, Home Depot Inc (NYSE:HD) reported revenues of $23 billion up from $21.8 billion posted a year earlier. According to our database, 72 hedge funds reported stakes in Home Depot Inc (NYSE:HD) as of the end of September, up from 67 funds a quarter earlier. However, the value of their holdings declined to $4.3 billion from $4.37 billion quarter over quarter.

Two Sigma Advisors reported holding 4.6 million shares of Dow Chemical Co (NYSE:DOW) worth $238 million as of the end of September, having bought 275,602 shares during the third quarter. Two other funds bullish on the stock are Glenview Capital Management, which bought 433,600 shares during the third quarter and AQR Capital Management, which added 803,223 shares to its equity portfolio between July and September. Glenview and AQR Capital disclosed ownership of 5.9 million shares and 4.15 million shares in their latest 13F filings, respectively. For the third quarter, Dow Chemical Co (NYSE:DOW) posted EPS of $0.91, which topped estimates by 13.75%. The stock has advanced by more than 10.3% in the last six months outperforming the S&P 500, which has returned 8.4%. The stock has a dividend yield of 3.13% and trades at 14 times its forward P/E. Though the number hedge funds that we track long on Dow Chemical Co (NYSE:DOW) inched down by 1 to 47 during the third quarter, the value of their holdings increased by 5.85% to $2.68 billion.

Two Sigma Advisors initiated a new position in Wal-Mart Stores, Inc. (NYSE:WMT) and held 3.28 million shares worth $237 million at the end of the third quarter. On the other hand, Warren Buffett’s Berkshire Hathaway was less bullish on the company as it sold 27 million shares reducing its total holding to 12.9 million shares at the end of September. The company has been losing market share to online rivals such as Amazon.com Inc (NASDAQ:AMZN). To combat competition, Wal-Mart Stores, Inc. (NYSE:WMT) has offered free in-store pickup for online orders placed until 6 pm local time on December 23. During the third quarter, the number of funds from our database long Wal-Mart Stores, Inc. (NYSE:WMT) went up to 71 from 58, but the total value of their positions declined to $5.46 billion from $6.86 billion.

Disclosure: None