David E. Shaw gained popularity through his exploitation of inefficiencies in the financial market with the help of computational algorithms and a strong computer network, with Fortune magazine once calling his fund “”the most intriguing and mysterious force on Wall Street.” In its recent 13F filing with the SEC, D E Shaw, the fund founded by David Shaw, who remains the Chief Scientist of D E Shaw Research, reported an equity portfolio of $65.29 billion as of the reporting period of March 31. The fund is primarily invested in the technology and consumer discretionary sectors. While its primary stock picks include a put position in Apple Inc. (NASDAQ:AAPL) and a long position in Phillips 66 (NYSE:PSX), D E Shaw has investments in numerous mid-cap stocks, which we will discuss in this article. Some of its top mid-cap stock holdings include Verisign, Inc. (NASDAQ:VRSN), Allison Transmission Holdings Inc (NYSE:ALSN) and Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
Hedge funds and other big money managers like D E Shaw tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 144%, beating the broader market by over 84 percentage points through the middle of May (see the details).
Follow David E. Shaw's D E Shaw
With 4.77 million shares valued at $319.63 million, Verisign, Inc. (NASDAQ:VRSN) is the largest mid-cap stock investment of D E Shaw. The firm has increased its stake in the domain name provider by 20% during the first quarter. Verisign, Inc. (NASDAQ:VRSN) has a market cap of $7.51 billion along with a current P/E ratio of 25.40. Verisign, Inc. (NASDAQ:VRSN) is also one of the top mid-cap stock picks of Warren Buffett, with the investing legend owning 12.99 million shares of the company. Renaissance Technologies, another quant fund, and Makaira Partners are among the other major stock holders of the company.
D E Shaw is the second-largest shareholder of Allison Transmission Holdings Inc (NYSE:ALSN) in our database with 9.40 million shares valued at $300.25 million. The fund trimmed its investment in the automatic-transmission manufacturer by 4% during the first quarter. Allison Transmission Holdings Inc (NYSE:ALSN) has a market cap of $5.66 billion and its shares trade at $31.53 with a P/E ratio of 23.28. ValueAct Capital and Gates Capital Management hold major positions in Allison Transmission Holdings Inc (NYSE:ALSN).
