The quantitative hedge fund Renaissance Technologies, formerly managed by billionaire Jim Simons, has been so successful that it has been partly responsible for prompting other funds to begin the process of looking into and setting up their own quantitative-based teams to augment their trading, including billionaires Ray Dalio and Steven Cohen. In fact the shift towards automated trading is so strong and the algorithms only continuing to improve, to the point that some in the industry are heralding the future demise of the human trader.
No matter where the investment segment goes from here, Simons will always be one of the best players on the market (as evidenced by his “Quant King” nickname). In 2014, Simons was one of the top-earning hedge fund managers, raking in $1.1 billion, according to Forbes, despite the niggling fact that he retired in 2010 (he does still play a role in the fund). The huge earnings are thanks to the large 5/44 fixed/performance fees RenTech can charge due to its overwhelming success, compared to the industry standard fees of 2/20.
However, despite outstanding performance, these high fees and very strict requirements for becoming a hedge fund investor, make hedge funds inaccessible to individuals with smaller net worths. Nevertheless, hedge funds usually disclose their equity portfolios in their quarterly 13F filings and are obliged to report their changes of ownership once their stake in a company reaches 5% of outstanding stock. Even though this reporting comes with some delays, hedge funds’ filings with the US Securities and Exchange Commission can provide a lot of useful information. Through extensive testing and research, we developed a system in the form of a small-cap strategy, which pools the top 15 small-cap picks among more than 700 funds we track. This strategy performed really well in backtests and it’s been a huge success since we started sharing it in August 2012. Our strategy posted cumulative returns of 132% over the last 2.5 years and outperformed the S&P 500 ETF (SPY) by 79.4 percentage points during that time (see more details here).
Naturally, RenTech is very useful to our strategy, since it has a very diversified equity portfolio and Mr. Simons has a great track record of picking stocks from the small-cap space. However, we won’t be looking at the fund’s small-cap picks in this piece; instead we will take a look at three companies that Renaissance has been holding in its equity portfolio for at least one year. Even though, Renaissance uses quantitative analysis, Mr. Simons also prefers to invest in companies with a long-term growth potential, which is why three largest long-term positions are also among the fund’s largest holdings and have been at the top of the list for at least a year. All three stocks have had a solid performance over the long-run and during the last three years have outperformed their industries by huge margins.
On the first spot is Colgate-Palmolive Company (NYSE:CL), which is also Simons’ top pick, as of the end of last year. Colgate-Palmolive Company (NYSE:CL) has been among Simons’ top 10 holdings since the middle of 2012, though the position became the largest in terms of value only during the fourth quarter, after it was raised by 15% to 12.58 million shares valued at $870.09 million. That makes him by far the largest shareholder among the funds from our database, followed by Jean-Marie Eveillard’s First Eagle Asset Management, which holds 4.83 million shares. The consumer products company, which is most well-known for its line of oral hygiene products, has had its shares rise by 32% since the middle of 2012. The $62.39 billion market-cap company recently surpassed Ford Motor Company (NYSE:F) as the 74th most valuable company in the world, according to The Online Investor.
Simons’ position in the $104.28 billion market-cap pharmaceutical giant Novo Nordisk A/S (ADR) (NYSE:NVO) is his second most-favored long-term holding. The stake that contains 15.61 million shares, valued at $660.81 million, is his second-largest holding as of the end of 2014. The position was trimmed by 4% during the last quarter, while prior to that it was RenTech’ largest position. The investor has been keeping Novo Nordisk among its top 10 picks since at least the second quarter of 2012. Recently, Novo Nordisk A/S (ADR) (NYSE:NVO)’s anti-obesity drug Saxenda has been approved by the European Commission. The company is also in the process of resubmitting New Drug Applications for the insulin treatments Tresiba and Ryzodeg and is anticipating price gains for those drugs, despite strong competition from Sanofi SA (ADR) (NYSE:SNY)’s Toujeo and generic drug makers. Renaissance is also the largest shareholder of Novo Nordisk A/S (ADR) (NYSE:NVO) among the funds we track, with billionaire Ken Fisher landing in second spot with 13.04 million shares.
Linear Technology Corporation (NASDAQ:LLTC) is another position which has been in Simons’ top ten for quite some time. In its latest 13F filing, the investor reported ownership of 9.99 million of the shares, with an aggregate value of $455.35 million.With a market cap of $11 billion, Linear Technology Corporation (NASDAQ:LLTC) is one of the smallest companies among the fund’s largest holdings. Moreover, in comparison with the previous two companies, Renaissance is not the largest shareholder of Linear Technology Corporation (NASDAQ:LLTC) among the funds we track; being outrun by First Eagle Asset Management with 12.27 million shares. Linear Technology has greatly outperformed the semiconductor industry in terms of return on equity at close to 39%, compared to the industry average of 16%.
Disclosure: None
