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).
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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).
The current position of D E Shaw in Spirit AeroSystems Holdings, Inc. (NYSE:SPR) includes 5.56 million shares valued at $290.40 million. The commercial aero structures manufacturer has a market cap of $7.65 billion and its shares trade at $53.54 with a P/E ratio of 19.55. Boeing Co (NYSE:BA) is reportedly in talks with Spirit AeroSystems Holdings, Inc. (NYSE:SPR) related to a new deal concerning its 787 Dreamliner jet. AeroSystems manufactures several parts of Boeing’s 737 aircraft and Boeing is trying to control its manufacturing costs by entering into a new deal with AeroSystems. Scopia Capital, Hound Partners, and Darsana Capital Partners are some of the primary investors of the airplane parts manufacturer.
Dresser-Rand Group Inc. (NYSE:DRC) is another mid-cap stockholding of D E Shaw, which also happens to be the second-largest investor of the company in our database. The current position of the investment firm in Dresser-Rand Group Inc. (NYSE:DRC) includes 3.14 million shares with a market value of $252.36 million. The rotating equipment solution company has a market cap of $6.49 billion with a current P/E ratio of 79.11. The European Commission is reviewing a merger application between Siemens AG (ADR) (OTCMKTS:SIEGY) and Dresser-Rand Group Inc. (NYSE:DRC), which would see the former acquire the latter for $7.6 billion. Sources have reported that the deal will receive EU approval, with the official review period ending on July 24. The equipment manufacturer has attracted investments from major investors including Pentwater Capital Management and Thomas Steyer‘s Farallon Capital.
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