Hedge Fund Portfolio Tracking: Renaissance Technologies (Jim Simons), Q3 2008

This is the Third Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F filings here.

The other funds we've already covered include:

• Timothy Barakett's Atticus Capital
• Whitney Tilson's T2 Partners
• Peter Thiel's Clarium Capital
• Bill Ackman's Pershing Square
• Bret Barakett's Tremblant Capital
• John Paulson's Paulson & Co
• David Einhorn's Greenlight Capital
• Dan Loeb's Third Point
• Paul Tudor Jones' Tudor Investment Corp
• Louis Bacon's Moore Capital Management
• Bruce Kovner's Caxton Associates
• George Soros Soros Fund Management
• Chase Coleman's Tiger Global
• Stephen Mandel's Lone Pine Capital
• Lee Ainslie's Maverick Capital
• John Griffin's Blue Ridge Capital
• Andreas Halvorsen's Viking Global
• Chris Shumway's Shumway Capital Partners
• Paul Touradji Touradji Capital
• Eric Mindich's Eton Park Capital
• Barry Rosenstein's Jana Partners
• Seth Klarman's Baupost Group
• Art Samberg's Pequot Capital Management
• Ricky Sandler's Eminence Capital
• Thomas Steyer's Farallon Capital Management
• Philip Falcone Harbinger Capital Partners
• Jeffrey Gendell's Tontine Associates

Next up is Jim Simons' Renaissance Technologies, ranked fourth in Alpha's 2008 hedge fund rankings. Rentec, as it is commonly known, was started by Simons in 1982 and as of its latest 13F filing, holds $37 billion in public equities. It employs mathematical and statistical methods to execute its investments and trades, and its flagship $8 billion Medallion fund has averaged annual returns around 35%. Unlike most hedge funds which charge a flat 2% management fee on assets and then a 20% performance fee, Medallion charges a 5% management fee and a performance fee > 40%. The fees are high, but after seeing its returns, one could argue it is easily worth it.

When last we checked, Medallion was up around 58% for the year as of October. The bad news to anyone reading is that the fund is pretty much limited to only former and current Renaissance employees. Simons other funds, which are open to other investors, the Institutional Futures and Institutional Equities funds were -15.6% and -14.8% year-to-date respectively as of October.

Rentec is noted to be the most successful hedge fund in the industry, with returns eclipsing other legendary investors including Paul Tudor Jones, Bruce Kovner, and George Soros. Recently, Mr. Simons recently testified before Congress with numerous other hedge fund managers and discouraged the SEC from making funds' short positions available to the public. For more on Simons & Renaissance, check out our post on hedge fund manager interviews. Do note that tracking Rentec through 13F filings is only slightly useful, at best, because, it trades everything... literally.

We're covering it in our portfolio tracking series because it has an outstanding track record and people are always interested in what it is up to. Just note that it is very different from the majority of funds we cover and since it trades every type of asset under the moon, the 13F is only slightly relevant. The majority of equity holdings you will see in its portfolio are from its Institutional Equities Fund.

The following were its long equity, note, and options holdings as of September 30, 2008 as filed with the SEC. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that it initiated in the last quarter):

• Emerson Electric (EMR)
• Air Products (APD)
• US Steel (X)
• Visa (V)
• Celgene (CELG)
• Praxair (PX)
• Bunge (BG)
• CVS Caremark (CVS)
• Tyco (TYC)
• Deere (DE)
• National Oilwell Varco (NOV)
• Alcoa (AA)
• Baker Hughes (BHI)
• Ralcorp (RAH)
• Questar (STR)
• Weatherford (WFT)
• Chesapeake Energy (CHK)
• Vodafone (VOD)
• Williams Companies (WMB)
• Cardinal Health (CAH)
• Banco Itau (ITU)
• BJ Services (BJS)
• FMC (FMC)
• Hologic (HOLX)
• PNC Financial (PNC)
• HCP (HCP)
• Anheuser Busch (BUD)
• Centex (CTX)
• Sara Lee (SLE)
• ABB (ABB)

Some Increased Positions (A few positions it already owned but added shares to):

• Costco (COST): Increased position by 2,030%
• Apple (AAPL): Increased position by 1,650%
• Freeport McMoran (FCX): Increased position by 1,029%
• Wrigley (WWY): Increased position by 496%
• General Dynamics (GD): Increased position by 258%
• Amgen (AMGN): Increased position by 192%
• DirecTV (DTV): Increased position by 90%
• Gilead Sciences (GILD): Increased position by 65%
• Honeywell (HON): Increased position by 44%
• Eli Lilly (LLY): Increased position by 32%
• Apollo Group (APOL): Increased position by 22.5%

Some Reduced Positions (Some positions it sold some shares of - note not all sales listed):

• Berkshire Hathaway Class A (BRK.A): Reduced position by 50%
• Colgate Palmolive (CL): Reduced position by 30%
• AstraZeneca (AZN): Reduced position by 29%
• Paychex (PAYX): Reduced position by 15%
• Nationwide Financial Services (NFS): Reduced position by 14.5%
• Philippine Long Distance (PHI): Reduced position by 14%
• Walmart (WMT): Reduced position by 11%
• GlaxoSmithKline (GSK): Reduced position by 10%

Removed Positions (Positions it sold out of completely):

• Beckman Coulter (BEC)
• Republic Services (RSG)
• L3 Comm (LLL)
• Occidental Petroleum (OXY)
• Burlington Northern (BNI)
• China Mobile (CHL)
• CH Robinson (CHRW)
• Fiserv (FISV)
• Whiting Petroleum (WLL)
• JPMorgan Chase (JPM)
• Centurytel (CTL)
• Grey Wolf (GW)
• Joy Global (JOYG)
• Omnicom (OMC)
• Aeropostale (ARO)
• Canadian Natural Resources (CNQ)
• Reinsurance Group (RGA)
• Best Buy (BBY)
• Procter & Gamble (PG)
• Petroleo Brasileiro (PBRA)
• American Express (AXP)
• Kellogg (K)
• Navteq - inactive
• Wells Fargo (WFC)
• 3M (MMM)
• United Technologies (UTX)
• Agrium (AGU)
• General Electric (GE)
• Linear Technology (LLTC)

Top 20 Holdings (by % of portfolio)

1. UST (UST): 1.17% of portfolio
2. Walmart (WMT): 0.88% of portfolio
3. Amgen (AMGN): 0.86% of portfolio
4. Apple (AAPL): 0.78% of portfolio
5. Wrigley (WWY): 0.7% of portfolio
6. Forest Labs (FRX): 0.58% of portfolio
7. Colgate Palmolive (CL): 0.54% of portfolio
8. Philippine Long Distance (PHI): 0.52% of portfolio
9. GlaxoSmithKline (GSK): 0.51% of portfolio
10. Lockheed Martin (LMT): 0.5% of portfolio
11. DirecTV (DTV): 0.49% of portfolio
12. General Dynamics (GD): 0.48% of portfolio
13. Emerson Electric (EMR): 0.45% of portfolio
14. Air Products (APD): 0.45% of portfolio
15. Chunghwa Telecom (CHT): 0.45% of portfolio
16. Novo-Nordisk (NVO): 0.44% of portfolio
17. Paychex (PAYX): 0.42% of portfolio
18. Dun & Bradstreet (DNB): 0.41% of portfolio
19. Humana (HUM): 0.41% of portfolio
20. Freeport McMoran (FCX): 0.39% of portfolio

Assets from the collective long U.S. equity, options, and note holdings were $43.9 billion last quarter and were $37.1 billion this quarter.

Please note that we have not detailed changes to every single position in this update, but we have covered all the major moves. Also, keep in mind that these filings only include long equity, notes, and options holdings. They do not reflect its cash, short portions, or holdings in other markets (currency, commodities, debt, foreign markets, private equity, etc.).

Overall, it's been one of the worst years ever for hedge funds, as we noted in our new November hedge fund performance number update. Thus, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out.

Comments

[ROLEX18K:]

What sense it has to quote 100 symbols that somebody holds, it is like listing WILSHIRE 5000 companies and say that those have hedge fund investor of 0.2% or 1.9% ?
What do I care what John or Paul or Johnny bought few months ago or yesterday? You quote those traders as some gods when in reality they are same boys and girls like you and me.
You can't make money following some hedge fund manager and looking in the garbage what brand of coffee he drinks or what orange juice he drinks.

Jan 09 12:55 PM

[Daniel Moser:]

There needs to be a major disclaimer in this article. Some hedge funds that are being tracked are prefectly fine and arguably helpful. Anything related to Renaissance should be looked at for fun with no intentions of gaining any insights from it. I would argue that no insight can be gained looking at Renaissance because they are more than anything a quant shop. As an individual from the outside looking in...you have no idea why they own those securities, how long they have owned them in relation to the filing period, how long they will continue to hold them, etc. For all you know, they are holding certain securities in one fund because it tends to behave a desired way with another fund you have no information on. It is really dangerous to attempt to garner information from a fund that is famous for changing strategies midgame.

The managers at Renaissance are like Gods. They are all extrodinarily intelligent. Renaissance is more like a Think Tank than a hedge fund. They are not ordinary folks. They are Phd in mathematics, physics, and statistics. In conclusion, just take a huge grain of salt from any holdings reports on Renaissance related funds.

Jan 09 02:24 PM

[Market Folly:]

Rolex18K: We've selected a list of managers who have a *proven* track record of long term outperformance. We're merely providing a resource for investors who wish to get inside these manager's heads. It can be tedious to go through and calculate % changes from quarter to quarter for each hedge fund, having to go line by line, position by position. We're simply trying to save investors some time who want this information. If it is not of use to you, then don't use it.

Also, you'll probably be interested to know that you *CAN* make money simply by mimicking their portfolios, as Mebane Faber has proved with his Alphaclone. Portfolios constructed using selected managers with proven outperforming track records have outperformed the s&p. Mebane's done great work, for instance tracking 'Tiger Cub' funds who we track on our blog. If you had selected a portfolio combo of their holdings, you would have outperformed the markets by 12% a year. You could also hedge the portfolio with a s&p hedge and then go long the various holdings and you could see the following results: Annualized Return: 13.5%, Volatility: 16.1%, MaxDD: -23.9%.

So, while you're entitled to your opinion that it does not work, there is a ton of numerical evidence that it indeed does work. But, in the end, we're simply providing a resource for investors. Thanks for your comment.

Jan 11 05:14 PM

[Market Folly:]

DMoser, completely agreed. And that's why we have listed a note in the article saying that tracking Renaissance by 13F is not really useful, but more for fun since people are interested in what they are doing. Perhaps we should have made the note in bold or more prevalent, but there is one within the article. Thanks for the comment, we'll make it bold next time around.

Jan 11 05:18 PM

[LookingConf...:]

And advice of some 1,278,900 shares in Looksmart. (7.51%)

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Most interesting!!

Feb 13 07:25 AM