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

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.

RENAISSANCE TECHNOLOGIES

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).

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#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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#3 Alaska Air Group Inc. (NYSE:ALK)

Shares Owned by Renaissance Technologies LLC (as of September 30): 5.51 million shares

Value of Holding (as of September 30): $438.15 million

Alaska Air Group Inc. (NYSE:ALK) has had a great year in terms of stock performance thus far in 2015, with its shares advancing 27% year-to-date. Even so, Jim Simons’ Renaissance Technologies cut its exposure to the company during the September quarter, reducing its stake by 530,479 shares over the three-month period. It might seem that the well-known hedge fund increases its exposure to companies with high valuations and reduces its positions in ‘cheap’ companies. Alaska Air Group has a trailing P/E of 12.43, which is substantially below the median for the S&P 500 companies. The low oil price environment, the tightening labor market and the strengthening U.S. economy have surely assisted the airline company in delivering a stong performance this year. David Harding’s Winton Capital Management increased its position in Alaska Air Group Inc. (NYSE:ALK) by 174,284 shares during the September quarter to 622,336 shares.

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#2 Novo Nordisk A/S (ADR) (NYSE:NVO)

Shares Owned by Renaissance Technologies LLC (as of September 30): 13.17 million shares

Value of Holding (as of September 30): $714.40 million

Renaissance Technologies slashed its stake in Novo Nordisk A/S (ADR) (NYSE:NVO) by 916,000 shares or roughly 9% during the previous quarter, remaining with slightly more than 13.17 million shares. The Danish drugmaker’s high-potential diabetes drug Victoza did not “improve clinical stability or delay death in patients suffering from advanced heart failure”, according to a recent article published by Reuters. Researchers had previously anticipated that the injectable drug’s effect on the level of blood sugar could somewhat reduce some of the metabolic effects of heart failure. Just recently, the world’s largest insulin maker reported a third-quarter net profit of $8.38 billion Danish kroner ($1.24 billion), which grew 29% year-on-year. Arrowstreet Capital upped its stake in Novo Nordisk A/S (ADR) (NYSE:NVO) by 6.86 million shares during the latest quarter, owning 12.61 million shares as of September 30.

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#1 Colgate-Palmolive Company (NYSE:CL)

Shares Owned by Renaissance Technologies LLC (as of September 30): 11.44 million shares

Value of Holding (as of September 30): $725.84 million

Colgate-Palmolive Company (NYSE:CL) was the largest equity holding of Renaissance Technologies at the end of the third quarter, which accounted for 1.73% of its portfolio. Jim Simons’ hedge fund reduced its position in the global consumer products company by 1.15 million shares during the turbulent three-month period. Expectedly, the company’s high exposure to global economies has put some downward pressure on its top- and bottom-lines. Just recently, Colgate-Palmolive reported third-quarter worldwide net sales of $4.00 billion, which were down 8.5% year-over-year. The foreign exchange rates had a noticeable impact on this figure, considering that the company’s organic sales (i.e. net sales excluding foreign exchange, acquisitions and divestments) climbed 5.0% year-on-year. First Eagle Investment Management, founded by Jean-Marie Eveillard, reported owning 4.74 million shares in Colgate-Palmolive Company (NYSE:CL) in the latest round of 13F filings.

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