Jim Simons’ Renaissance Institutional Equities Fund gained 5.4% in August and 25.6% YTD, according to Dealbook. This is very mysterious. Renaissance Institutional Equities Fund (RIEF) invests in stocks with a longer term horizon. How did he manage to beat the market by 10.5 percentage points in August?
We don’t know which stocks are held by RIEF but we have an idea. The largest positions in Jim Simons’ 13F portfolio are probably held by RIEF. You don’t build a $400 Million position in Apple to make a quick buck in two days. Simons’ had several large holdings in his portfolio at the end of March and he had most of those stocks at the end of June. This implies that these stocks are his longer term holdings. What are these stocks? Simons had more than $250 Million in each of Apple (AAPL), LLY, PG, LO, INTC, and GOOG at the end of June.
When we calculated a weighted average return of Simons’ 13F portfolio we saw that the performance of more than 1500 stocks in Simons’ portfolio was slightly better than the S&P 500 ETF (SPY), -4.9% vs. -5.1%. However smaller positions in Simons’ 13F portfolio most probably held by other funds managed by Simons. That’s why we also calculated the returns for the largest 50 stock positions in Simons’ 13F portfolio. These 50 stocks lost 1.6% in August, 3.5 percentage points better than the SPY.
This means Jim Simons generated one third of his alpha on the long side of his stock portfolio. What is the source of the remaining 7 percentage points of abnormal performance? RIEF is supposed to be investing in equities, so it shouldn’t be deriving its gains from commodities. This means RIEF generated its alpha on the short side (RIEF was probably more short than long). However, we don’t really know how RIEF achieved this amazing performance. Clearly RIEF didn’t make bearish bets when the stocks were generating positive returns during the first half of the year. Simons managed to beat the market when the market was increasing and he managed to beat the market when the market is decreasing. This is very mysterious.
Individual investors still benefit from imitating his largest stock picks though. He has been investing in conservative stocks and these long positions have been outperforming the market since the beginning of this year.