Many investors and market watchers claim that quarterly 13Fs from hedge funds are of limited use to mom-and-pop traders. However, we have done extensive research on these filings, which disclose positions as of the end of each quarter, and have found that they can at least be useful in developing investment strategies. Specifically, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). We’ve put this theory into practice with a model portfolio which outperformed the S&P 500 by 33 percentage points since inception 11 months ago.
We can also use 13Fs to identify individual managers’ favorite stocks in a number of areas, including stocks which satisfy the traditional value criteria of low price-to-earnings multiples. This acts as a kind of stock screen to help investors identify potentially interesting names. Read on for our quick take on the five largest positions in billionaire Ken Griffin’s Citadel Investment Group’s portfolio as of the end of June with both trailing and forward P/Es of 12 or lower (or see the full list of Griffin's stock picks).
The largest equity position in the fund was its nearly 990,000 shares in Apple Inc. (NASDAQ:AAPL), which still trades at 12 times its trailing earnings as markets price in continued declines in the company’s margins and therefore net income. The company is planning a significant buyback program and billionaire activist Carl Icahn has suggested that he may push for an even larger one. A number of filers we track sold out of Apple Inc. (NASDAQ:AAPL) last quarter, and as a result it fell to third place on our list of the most popular stocks among hedge funds (check out the full top ten list). We’d note that Citadel also owns a number of both call and put options on Apple Inc. (NASDAQ:AAPL) stock.
Griffin and his team increased the size of their position in U.S. Bancorp (NYSE:USB) to a total of 9.3 million shares. The bank, which focuses on retail and commercial banking in the midwestern and western U.S., is also valued at 12 times its trailing earnings. Unlike the megabanks, which have prospered quite a bit over the last year, its net income grew only 5% last quarter compared to the second quarter of 2012 though of course little growth is required at the current valuation. Warren Buffett’s Berkshire Hathaway reported a position of over 78 million shares in U.S. Bancorp (NYSE:USB) on its own 13F (find Buffett's favorite stocks).