New York-based famed quant fund Two Sigma Advisors recently disclosed its US equity portfolio worth $19.68 billion at the end of second quarter, via a 13F filing submitted with the SEC. Co-founded by John Overdeck and David Siegel in 2001, the fund currently manages assets worth over $35 billion.
Like most quant hedge funds, Two Sigma Advisors also has positions in hundreds or thousands of stocks at any given point of time. Its latest 13F filing reveals that the funds equity portfolio consisted of 2,029 long positions at the end of June and was fairly well diversified across sectors. In this post, we will take a look at the five major bullish moves made by Two Sigma Advisors during the second quarter and will try to understand why the fund was betting big on those stocks.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
Nike Inc (NYSE:NKE)
– Shares Owned by Two Sigma Advisors (as of June 30): 3.04 Million
– Value of The Holding (as of June 30): $167.60 Million
Let’s begin with Nike Inc (NYSE:NKE), in which Two Sigma Advisors upped its stake by 44% during the second quarter. The footwear giant seems to have ended its multi-year bull run in 2016 as its stock has lost 16% of its value so far this year while the benchmark is trading in the green. Nevertheless, most of the analysts who track the stock continue to remain bullish on it citing the company’s dominant market share and its resolve to reach $50 billion in annual revenue by 2020. On September 22, Nike Inc (NYSE:NKE) revealed that it is planning to launch its much-awaited HyperAdapt 1.0 self-lacing shoe on November 28 at some retail stores in the U.S. During the second quarter, the number of hedge funds covered by us that were long Nike declined by seven to 57, but the aggregate value of their holdings in the company went up by $654 million to $4.30 billion.
Amazon.com, Inc. (NASDAQ:AMZN)
– Shares Owned by Two Sigma Advisors (as of June 30): 289,054
– Value of The Holding (as of June 30): $206.85 Million
The never ending rally in Amazon.com, Inc. (NASDAQ:AMZN)’s stock has helped it in conquering the $800 mark recently and register a gain of 23% so far in 2016. At the end of June, there were 145 hedge funds covered by us long in the stock, including Two Sigma Advisors, which increased its holdings in the company by 22% during the April-June period. On September 21, TechCrunch reported that the e-commerce behemoth has acquired natural-language startup Angel.ai for an undisclosed amount. A day later, Amazon launched a new portal for photo printing services and custom photo books, which caused shares of companies that operate in this industry to tumble. Recently, analysts at Mizuho have reiterated their ‘Buy’ rating on Amazon’s stock and also upped their price target on it to $950 from $855.
Facebook Inc (NASDAQ:FB)
– Shares Owned by Two Sigma Advisors (as of June 30): 1.84 Million
– Value of The Holding (as of June 30): $210.71 Million
Moving on, Two Sigma Advisors boosted its stake in Facebook Inc (NASDAQ:FB) by 236% during the second quarter. At the end of last week, shares of the social media giant declined on reports that for two years it vastly overestimated the average viewing time of video ads on its platform. Despite that beating, Facebook Inc (NASDAQ:FB)’s stock is still trading up by 23% year-to-date. On September 26, analysts at Cowen and Company published a note in which they displayed conviction on the company saying that “[…] this looks like a story in search of a controversy. We have every reason to expect that FB treats its metrics and definitions as sacrosanct and that this is a case of clarification versus an attempt to mislead advertisers.” In their note, the analysts also reiterated their ‘Buy’ rating and $140 price target on the stock. Facebook was the most popular stocks at the end of second quarter among hedge funds tracked by Insider Monkey, with 148 of them holding shares with a total value of $15.24 billion.
Baxter International Inc (NYSE:BAX)
– Shares Owned by Two Sigma Advisors (as of June 30): 4.78 Million
– Value of The Holding (as of June 30): $216.41 Million
Amid a 10% rise in Baxter International Inc (NYSE:BAX)’s stock during the second quarter, Two Sigma Advisors boosted its holding in the company by 222%. Other hedge funds that also increased their stakes in the company included David Fear‘s Thunderbird Partners and Jim Simons‘ Renaissance Technologies. Though Baxter International Inc (NYSE:BAX)’s stock has appreciated by 24% so far in 2016, when the stocks of most of its peers is trading in the red, a number of analysts still consider the stock to be undervalued. According to them, Baxter International is one of the most risk-averse player in the healthcare industry and hence a safe bet for investors. Additionally, they also think that the company’s margins are much stronger and relatively stable when compared to its peers. On September 15, analysts at Barclays PLC initiated coverage on the stock with an ‘Overweight’ rating and $52 price target.
Wells Fargo & Co (NYSE:WFC)
– Shares Owned by Two Sigma Advisors (as of June 30): 470,048
– Value of The Holding (as of June 30): $13.51 Million
With Two Sigma Advisors increasing its stake in the company by 577% during the second quarter, Wells Fargo & Co (NYSE:WFC) jumped several spots in the fund’s equity portfolio and became its fourth largest equity holding at the end of that period. The bank holding company has lost over 10% of its market capitalization this month after it was revealed that it has been fined $185 million for account-opening scandal. Taking into account this recent decline, Wells Fargo & Co’s stock now trades down by over 18% year-to-date. Recently, Goldman Sachs Group’s analyst Richard Ramsden released a note, in which he defended Wells Fargo & Co (NYSE:WFC) and reiterated his ‘Buy’ rating and $56 price target on the stock. According to Mr. Ramsden, the stock can remain volatile in the near-term, but its attractive annual dividend yield will protect it from any significant downside. The number of hedge funds covered by us that were long Wells Fargo & Co declined by two to 88 during the April-June period.