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Billionaire David Shaw’s Small Cap Picks Include AOL, Inc. (AOL)

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Several weeks after the end of each fiscal quarter, hedge funds such as billionaire David Shaw’s D.E. Shaw file their 13Fs with the SEC, disclosing many of their long equity positions as of the end of the previous quarter. Our research has shown that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and in fact our live testing of this strategy has returned 38% since September 2012 (learn more about our small cap strategy). We can also use our database of 13F filings to look through top small cap picks from individual managers and treat these picks as initial investment ideas. Read on for our quick take on D.E. Shaw’s five largest small cap holdings as of the end of March and compare these picks to those in previous filings.

The fund reported a position of 1.4 million shares in Equity Lifestyle Properties (NYSE:ELS), a real estate investment trust which leases its land to residential operators. Real estate investment trusts receive favorable tax treatment conditional on distributing a large share of their taxable income to shareholders, often resulting in high yields. In Equity Lifestyle Properties (NYSE:ELS)’s case, the yield is currently 2.5% though quarterly payments have been increasing over the last several years. Of course, many other REITs (as well as larger, stable consumer stocks) offer higher current yields and may be better choices for income investors.

David ShawAnother REIT, Regency Centers Corp (NYSE:REG) made D.E. Shaw’s list of top small cap picks with the filing disclosing ownership of 1.9 million shares- a 57% increase from what the fund had owned three months earlier. Regency Centers Corp (NYSE:REG) focuses on shopping centers. Its quarterly dividend was cut from 72.5 cents to 46.3 cents in early 2009, and has been unchanged ever since, though this gives it a dividend yield of 3.4%. Billionaire Ken Griffin’s Citadel Investment Group had 1.2 million shares of Regency Centers Corp (NYSE:REG) in its portfolio at the beginning of April, according to its own 13F (check out Griffin’s stock picks).

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