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Multi-Billion-Dollar Fund Renaissance Technologies Entered Q4 With These Top Picks

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Well-known hedge fund Renaissance Technologies LLC needs little or no introduction at all. Jim Simons, also known as the “Quant King”, founded Renaissance back in 1982, while its Medallion Fund is considered as one of the most successful hedge funds in the finance world. The reputable hedge fund employs computer modeling that seeks for inefficiencies in highly liquid equities, a strategy that has turned out to very efficacious for the multi-billion-dollar investment management firm. Although Jim Simons retired from his hedge fund in 2010, he still remains engaged in the firm’s activities. Just recently, Renaissance Technologies compiled and submitted its 13F filing for the September quarter, so let’s take a thorough view at the hedge fund’s top stock picks at the end of the third quarter and their performance over the past several months.


Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 102% over the last 37 months, which is more than 53 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

Jim Simons
Jim Simons
Renaissance Technologies

#5 Chipotle Mexican Grill Inc. (NYSE:CMG)

Shares Owned by Renaissance Technologies LLC (as of September 30): 479,400 shares

Value of Holding (as of September 30): $345.29 million

Renaissance Technologies upped its holding in fast-casual restaurant chain Chipotle Mexican Grill Inc. (NYSE:CMG) by 165,900 shares or approximately 52% during the third quarter. The shares of the popular burrito chain are 12% in the red year-to-date, mainly owing to an E. coli outbreak in Washington state and Oregon that closed 43 restaurants. Earlier this week, the company announced that those locations will be reopened, as health officials concluded that there was “no ongoing risk from this incident”. Even so, the shares of the company are trading at a high P/E ratio of 36.65, which is well above the median of 19.30 for the S&P 500 Index. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital is another shareholder of Chipotle Mexican Grill, holding 120,511 shares as of September 30.

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#4 Verisign Inc. (NASDAQ:VRSN)

Shares Owned by Renaissance Technologies LLC (as of September 30): 5.01 million shares

Value of Holding (as of September 30): $353.79 million

The multi-billion-dollar hedge fund firm cut its position in Verisign Inc. (NASDAQ:VRSN) by a mere 35,300 shares during the September quarter, remaining with a stake that accounted for 0.84% of the firm’s entire equity portfolio. Verisign’s stock has been on a steady uptrend throughout the entire year, returning 43% year-to-date. At the end of October, the company reported its third-quarter financial figures, positing revenue of $266 million, which was up 4.2% year-on-year. Its net income came to $92 million or $0.70 per share, compared with $95 million or $0.69 per share reported last year. However, it appears that that the stock is relatively overvalued relative to the broader market if solely looking at its trailing P/E ratio. Specifically, the company has a trailing P/E ratio of 32.38, which is significantly higher than the ratio of the S&P 500. Reputable value investor Warren Buffett of Berkshire Hathaway owned 12.99 million shares in Verisign Inc. (NASDAQ:VRSN) on June 30.

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