The investment community grieved on Friday when it was announced renowned mathematician and investor Jim Simons (Trades, Portfolio), the head of quantitative hedge fund Renaissance Technologies, had passed away at the age of 86.
In a statement released by the Simons Foundation, President David Spergel said, “Jim was an exceptional leader who did transformative work in mathematics and developed a world-leading investment company.”
The charitable foundation, which Simons established in 1994 along with his wife, plans to continue carrying on its work of supporting research in mathematics, medicine and science.
A calculated investment style
Aside from his philanthropic efforts, Simons is possibly best known for his unique investment approach.
Having received degrees in mathematics from the Massachusetts Institute of Technology and University of California, Berkley, the guru chaired the math department at Stony Brook University in New York, where his contributions became important to advancements in fields such as string theory, topology and condensed matter physics. He also worked as a code breaker for U.S. intelligence during the Vietnam War.
After deciding to leave academia, he founded what would become the most successful quant fund of all time in 1978 at the age of 40.
Unlike most investors who focus on fundamentals like sales and profits to determine a company's value, Simons pioneered mathematical models and algorithms to make investment decisions.
Relying on an automated trading system to take advantage of market inefficiencies, Renaissance Technologies established a track record that rivals that of legends such as Warren Buffett (Trades, Portfolio), Peter Lynch and George Soros (Trades, Portfolio).
According to Reuters, the flagship Medallion Fund generated average annual returns of more than 60% over the course of three decades.
The fund closed to new investors in 1993, but allowed employees to invest starting in 2005.
Simons, who earned the moniker of “Quant King” due to his success, retired as Renaissance's CEO in 2010 and stepped down as chairman in 2021.
Portfolio standouts
While the nature of the firm's investment strategy does not typically lead to many long-term investments, one stock has held the top spot since the fourth quarter of 2020: Novo Nordisk AS (NVO, Financial).
Having owned the stock for more than a decade, the Danish pharmaceutical company, which is known for its diabetes, obesity, hemophilia and growth disorder medications, among a number of other treatments, makes up 2.22% of Renaissance's equity portfolio currently. The 13F filing for the fourth quarter of 2023 shows it holds 13.85 million shares as of Dec. 31. The firm appears to have been reducing the stake, however, as the share price continues to climb.
GuruFocus estimates Renaissance has gained 230.27% on the investment to date.
Other notable top stocks that have had a long-term, continuous presence in the equity portfolio include VeriSign Inc. (VRSN, Financial) and Vertex Pharmaceuticals Inc. (VRTX, Financial).
Investors should be aware 13F filings do not give a complete picture of a firm's holdings as the reports only include its positions in U.S. stocks and American depository receipts, but can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Further, the firm' algorithm appears to favor the technology and health care sectors, which account for 19.52% and 17.32% of the equity portfolio as of the end of the fourth quarter.
This appears to also be the case historically, with the tech sector's representation ranging from 12.21% to 19.73% since the third quarter of 2009. Similarly, the health care space has occupied between 8.06% and 25.41% of the equity portfolio over the same period.
Quant king legacy
Daring to take an unorthodox approach to the market, Simons proved that investors can find success through implementing algorithms and mathematical models to find inefficiencies. While this strategy may not work for everyone, it served as the foundation for the guru's legacy, which will continue to thrive for years to come.
