Quant Funds Express Interest in These Stocks

Though there are several thousand hedge funds that operate across the world today, the strategies they employ to generate alpha varies widely. From macro-focused to merger arbitrage to sector-specific, the list of strategies is never ending. However, there is one strategy that has been dominating the investing space for quite some time and has been so successful that a number of large hedge funds in the world today rely heavily, if not solely, on it. The strategy we are talking about is quantitative investing, which uses math and statistics instead of the run-of-the-mill fundamental approach, to predict the movement of stock prices. At Insider Monkey we track several prominent hedge funds, but the largest and most successful among them more often than not fall into the category of ‘quant funds’ including John Overdeck and David Siegel’s Two Sigma Advisors, billionaire David E. Shaw‘s D E Shaw, billionaire Cliff Asness‘ AQR Capital, and billionaire Jim Simons‘ Renaissance Technologies. In this post, we will take a look at five stocks that featured in the portfolio of these leading quant funds heading into the second quarter.

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 more details here).

#5. Randgold Resources Ltd. (ADR)(NASDAQ:GOLD)

Let’s start with Randgold Resources Ltd. (ADR)(NASDAQ:GOLD), in which both D. E. Shaw and Renaissance Technologies initiated a stake during the first quarter. While Renaissance Technologies purchased 361,900 shares, Shaw purchased 383,709 shares and 53,800 call option of the gold mining company. Like the stock of most gold miners, Randgold Resources Ltd. (ADR)(NASDAQ:GOLD)’s stock has also appreciated significantly this year on the back of the rally in gold prices and currently trades up 52.76% year-to-date. The company currently pays an annual dividend of $0.66 per share, which translates into an annual dividend yield of 1.33% based on its last trading price. On May 5, Randgold Resources Ltd. reported its fiscal 2016 first quarter numbers, declaring EPS of $0.58 on revenue of $345.77 million. For the same quarter of the previous financial year, it had reported EPS of $0.57 on revenue of $345.66 million.

#4. DENTSPLY SIRONA Inc (NASDAQ:XRAY)

Dental care company DENTSPLY SIRONA Inc (NASDAQ:XRAY) featured in the portfolios of Two Sigma Advisors, AQR Capital and D E Shaw at the end of first quarter. While DE Shaw and AQR Capital initiated a stake in the company during the first quarter itself, Two Sigma Advisors upped its stake in the company by 41% to 1.02 million shares during that period. Renaissance Technologies, which held 300,858 shares of  DENTSPLY SIRONA Inc (NASDAQ:XRAY) at the end of 2015, sold off its entire stake in the company during the January-March period. Shares of DENTSPLY SIRONA Inc have been on a slow, but consistent uptrend since 2012. Though they have appreciated by only 3.58% in 2016, they are currently trading very close to their lifetime high of $64.25. On May 13, analysts at Barrington Research reiterated their ‘Outperform’ rating on the stock, while upping their price target on it to $68 from $62.

#3. Masco Corp (NYSE:MAS)

Masco Corp (NYSE:MAS) saw a significant drop in its popularity among quant funds during the first quarter. In that period, Two Sigma Advisors, AQR Capital and Renaissance Technologies reduced their stakes in the company by 27%, 15%, and 20%, respectively. However, D. E. Shaw bucked that trend and brought up its holding in Masco Corp (NYSE:MAS) by 37% to 1.27 million shares during the same period. Similar to DENTSPLY SIRONA Inc, Masco Corp (NYSE:MAS)’s stock has also been on a gradual uptrend since 2012 and is currently trading near its 52-week high, but it is still down by over 20% from the highs it made above $37 mark in 2005. On June 1, analysts at FBR & Co. initiated their coverage on the stock with a ‘Buy’ rating. On the same day, analysts at Macquarie upgraded the stock to ‘Outperform’ from ‘Neutral’.

#2. ARRIS International plc (NASDAQ:ARRS)

Moving on, ARRIS Group started trading as ARRIS International plc (NASDAQ:ARRS) after its $2.1 billion merger with Pace PLC got completed at the beginning of 2016. During the first quarter, Two Sigma Advisors initiated a stake in the company and D. E. Shaw increased its holding in it by 288%, whereas Renaissance Technologies and AQR Capital lowered their positions, by 32% and 30%, respectively. Since the completion of the merger, shares of ARRIS International plc (NASDAQ:ARRS) have been drifting lower, losing around 23% of their value so far in 2016. However, most analysts believe that the stock will start doing well once the synergies from the ARRIS-PACE merger start unlocking in the coming quarters. Analysts at Jefferies Group initiated a coverage on ARRIS International’s stock on June 10, with a ‘Buy’ rating and $31 price target.

#1. Baxter International Inc (NYSE:BAX)

Quant funds covered by us, with the exception of Two Sigma Advisors, became increasingly bullish on Baxter International Inc (NYSE:BAX) during the first quarter. While Two Sigma Advisors lowered its stake in the company by 9% during the first quarter, D. E. Shaw, Renaissance Technologies, and AQR Capital increased it by 115%, 5% and 71%, respectively. Baxter International Inc (NYSE:BAX)’s stock was largely trading in a range in the months following the Baxalta Inc (NYSE:BXLT) spin-off in July last year. However, it started drifting upward in February and has so appreciated by 17% so far this year. In January, Shire PLC (ADR) (NASDAQ:SHPG) announced that it would acquire Baxalta Inc (NYSE:BXLT) in a $32 billion deal, which was completed recently. Baxter International’s stock currently sports an average rating of ‘Hold’ and an average price target of $48 from the 18 leading analysts on the Street who cover it.

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