We track quarterly 13F filings from hundreds of hedge funds including Renaissance Technologies, the large and highly successful hedge fund which has made its founder Jim Simons a multi-billionaire (see Renaissance’s filings over time). One use of these filings is in developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about imitating small cap picks). We can also screen a fund’s picks according to various criteria; for example, we can look for stocks bought by insiders, on the theory that insider purchases should reflect particular confidence in the company (otherwise the insider would prefer to diversify their wealth). Here are Renaissance’s five largest holdings from the 13F which at least one company insider has purchased in the last three months:
A Board member at Philip Morris International Inc. (NYSE:PM) bought 1,000 shares of the stock in late April, while Renaissance had 4.1 million shares of the cigarette company in its portfolio according to the filing. As with many cigarette companies, Philip Morris pays a fairly high dividend yield at 3.6%. However, business was about flat last quarter, with essentially no change on either top or bottom line compared to the first quarter of 2012, and at 18 times trailing earnings we’d be a bit concerned about the fundamental valuation of the stock- investors should at least compare it to its peers.
At the very end of February, we recorded an insider buying stock in PepsiCo, Inc. (NYSE:PEP) at an average price of $75.33 per share. Both Pepsico and its peer Coca-Cola are trading at just above 20 times trailing earnings, which we’d say it a pretty rich valuation for such a stable company. We suppose that Pepsi is something of a defensive play, with a beta of 0.4 and a 2.7% dividend yield, but there are probably cheaper options with similar characteristics. Renaissance owned 4.3 million shares at the end of March, up 67% from three months earlier. Billionaire Nelson Peltz’s Trian Partners initiated a large position in Pepsico last quarter (check out Peltz’s stock picks).