Jim Simons‘ Renaissance Technologies is a New York-based investment management company that currently operates three funds including the Medallion Fund, which is considered one of the most successful hedge funds ever. From its foundation in 1988 through 1999, Renaissance Technologies’ Medallion Fund generated an annual average return of 35% after fees. The firm was founded by Jim Simons in 1982 and currently manages an equity portfolio valued at $46.96 billion. The most recent 13F filing of the firm reveals that the company’s sizable portfolio has 3,133 active positions and that its holdings are diversified among a number of sectors including services, technology, healthcare, and finance. In this article we’ll look at the top stock picks of Renaissance Technologies in mid-cap companies with a market cap of $5 billion to $10 billion, with Simons’ top picks in this regard being Alaska Air Group Inc. (NYSE:ALK), Domino’s Pizza Inc. (NYSE:DPZ), Verisign Inc. (NASDAQ:VRSN) and Huntington Ingalls Industries Inc. (NYSE:HII).
Professional firms like Simons’ RenTech spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while Simons’ returns have been at the pinnacle of the industry for decades, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 139% and beaten the market by more than 80 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
Renaissance Technologies sold roughly 12% of its large stake in Alaska Air Group Inc. (NYSE:ALK), ending the first quarter with 6.82 million shares valued at $451.57 million. It seems that Renaissance Technologies has decided to cash out some of its stake in Alaska Air Group Inc. (NYSE:ALK) while its stock price is high, having already experienced attractive gains over the past year. Alaska Air Group delivered a strong financial performance during the most recent quarter, achieving revenue growth that slightly outperformed the airline industry average of approximately 0.9%. Also, the company’s current debt-to-equity ratio amounts to 0.35, slightly below the industry average, which indicates that the company has effectively managed its debt levels. However, some other funds that decreased their stakes in Alaska Air Group Inc. (NYSE:ALK) during the first quarter include Alexander Roepers’ Atlantic Investment Management, as well as PAR Capital Management.
Renaissance Technologies also sold off part of its stake in Domino’s Pizza Inc. (NYSE:DPZ), selling 158,900 shares to lower its remaining position to 3.45 million shares valued at $346.79 million. Even though Domino’s Pizza’s stock might be a relatively good pick as the retail restaurants industry has recently seen strong earnings estimate revision activity, Renaissance Technologies decided to trim its holdings in the stock. Nevertheless, since the American restaurant chain is perceived as a great company from a Zacks Industry Rank perspective, Domino’s Pizza Inc. (NYSE:DPZ) could continue to move higher despite the fact that it has already enjoyed a substantial gain of 54% throughout the past year. Indubitably, the company’s most recent financial results did not disappoint some of its main investors such as Andy Brown’s Cedar Rock Capital.
Renaissance Technologies increased its equity holdings in Verisign Inc. (NASDAQ:VRSN) by 316,600 shares during the latest quarter, lifting the overall position to 4.88 million shares valued at approximately $326.89 million. The share price of Verisign has dropped throughout the last few weeks as the company reported earnings per share of $0.74, slightly below analysts’ estimates of $0.75 per share, while quarterly revenue of $258.42 million was also slightly short of analysts’ estimates of $259.1 million. Nonetheless, Verisign Inc. (NASDAQ:VRSN) has been making quite a run since the beginning of the year and the Internet security and domain name registration company remains a strong value play in the eyes of Warren Buffett of Berkshire Hathaway, who holds 12.99 million shares.
Renaissance Technologies also increased its stake slightly in Huntington Ingalls Industries Inc. (NYSE:HII), to 1.69 million shares valued at $236.64 million as of March 31, an increase of 2% to the holding. Although Huntington Ingalls Industries disappointed with its declining earnings in the first quarter, the company’s financial performance might be turning around as there is talk that the years of flat to lower U.S. Department of Defense budgets may be coming to an end. Since Huntington Ingalls Industries is America’s largest military shipbuilding company, designing, building and repairing ships primarily for the U.S. Navy, it would stand to benefit greatly from increased government defense spending. Some of the funds that still own relatively large stakes in Huntington Ingalls Industries Inc. (NYSE:HII) include Joel Greenblatt‘s Gotham Asset Management, as well as Melvin Capital Management.
Disclosure: None
