Institutional investment managers who oversee more than $100 million must report their stock holdings on a quarterly basis to the SEC. Normally these Form 13F SEC filings have a time delay of 45 days, but they are still quite informative.
I recently reviewed the Form 13F SEC filings for Renaissance Technologies to see if they owned any closed end funds. Renaissance Technologies is a hedge fund management company. It was started by mathematician Jim Simons in 1982. Its $5 billion Medallion Fund has averaged 35% annual returns, after fees, since 1989. Renaissance hires only top PhD’s in math and science. Even James Altucher, who has got to be one of the brightest guys in the investment world, recounts how he was not hired by Renaissance because he never completed his PhD studies.
Renaissance’s Medallion Fund has been the most consistently successful hedge fund. The Medallion Fund tries to exploit very short-term market inefficiencies in highly liquid stocks and futures. In 2005, Renaissance launched a new Institutional Equities Fund which uses intermediate to longer term investing methods and is designed to have a capacity of up to $100 billion. It has already accumulated around $10 billion in assets, and many of the Renaissance SEC 13F filings are probably from this fund.
Renaissance owned about 50 closed end funds in their 12/31/2006 report. Some of these are funds I have previously discussed such as Adams Express (NYSE:ADX) and Petroleum & Resources Corporation (NYSE:PEO). Their largest closed end fund holding was ASA (Bermuda) Limited (NYSE:ASA), a precious metals fund that sells at a 12% discount to NAV and has a low expense ratio of 0.63%. Not a bad choice.
But I was in for a real shock when I saw that two fairly large holdings were Cornerstone Strategic Value (NYSEMKT:CLM) and Cornerstone Total Return (NYSEMKT:CRF). I have previously posted on these two funds as some of the worst choices available. Both funds sell at large premiums to NAV and have high management fees. They pay large “managed” distributions that are returns of capital and continually reduce the NAV of the funds. Eventually the fund distributions will have to be cut and the market prices of these funds will fall.
SEC 13F filings only show long positions, not short sales. Here is a quote from the FAQ page on the SEC Edgar web site:
Q: What about short positions?
A: You should not include short positions on Form 13F. You also should not subtract your short position(s) in a security from your long position(s) in that same security; report only the long position.
So I am perplexed as to why Renaissance would own either of these two funds. One possibility is they are running some sort of short term momentum-based trading strategy and were only in the funds for a brief period of time. But I checked some of the earlier filings and it is appears that Renaissance has actually been accumulating and adding to these two Cornerstone fund positions. Here are the Renaissance Technologies 13F holdings for the two funds historically:
Cornerstone Strategic Value (CLM)
12/31/2005 23,400 shares
3/31/2006 80,800 shares
6/30/2006 109,400 shares
9/30/2006 259,600 shares
12/31/2006 430,900 shares
Cornerstone Total Return (CRF)
6/30/2006 21,900 shares
9/30/2006 72,800 shares
12/31/2006 151,300 shares
If any of my readers have any ideas as to why Renaissance may be holding these two fund positions I would love to hear them.
Full Disclosure: I currently have no position in the funds mentioned above.