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.