Famed investor Clifford S. Asness runs AQR Capital Management LLC, a global investment firm with over $55 billion in equity holdings at the end of June. By employing a wide array of investment strategies such as momentum, risk-parity, convertible arbitrage, and event-driven strategies, Mr. Asness’ firm has managed to beat the market in terms of risk adjusted returns through both good times and bad.
In this article, we’ll take a closer look at five stocks that Mr. Asness’ fund increased its position in during the second quarter, according to its latest 13F filing. Those stocks are Procter & Gamble Co (NYSE:PG), Tyson Foods, Inc. (NYSE:TSN), FirstEnergy Corp. (NYSE:FE), Exxon Mobil Corporation (NYSE:XOM), and HP Inc (NYSE:HPQ).
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).
#5 HP Inc (NYSE:HPQ)
– Shares Held by AQR (as of June 30): 18.8 million
– Total Value of Holding (as of June 30): $235.96 million
AQR increased its stake in HP Inc (NYSE:HPQ) by 30% during the second quarter, to 18.8 million shares, as HP’s stock remains attractive in terms of forward P/E (at just 9) and dividend yield (at 3.5%). On the other hand, the other smart money funds in our database have mostly kept their positions the same. 40 of those funds were long HP Inc (NYSE:HPQ) at the end of the second quarter, unchanged from the end of March. While investors may be hesitant due to the PC’s secular decline, the coming VR wave could spur sales of high-end PC’s in the coming years. NVIDIA Corporation (NASDAQ:NVDA) expects that there will be 100 million VR-capable machines (which will primarily be PC’s and laptops) by 2020, from just 13 million today.
#4 Exxon Mobil Corporation (NYSE:XOM)
– Shares Held by AQR (as of June 30): 2.75 million
– Total Value of Holding (as of June 30): $258.14 million
Mr. Asness’ fund increased its stake in Exxon Mobil Corporation (NYSE:XOM) by 52% in the second quarter, to more than 2.75 million shares as of the end of June. Part of the reason for the increased stake could be the improving fundamentals in the crude sector. Non-OPEC production is declining and demand remains robust. The major oil producers, including the U.S., could also potentially strike a freeze deal that will alleviate any inventory overflow concerns for the quarters ahead. If crude prices rise, Exxon Mobil’s already-safe quarterly dividend of $0.75 per share (which equates to a dividend yield of 3.44%) will become more attractive.
Three more stocks favored in the second quarter by Mr. Asness’ quant fund are scrutinized on the next page.