The story of a successful mathematician and University professor turned investor is an inspiration for many. His input had a major contribution to developing quantitative investing and the popularization of high-frequency trading. His hedge fund Renaissance Technologies and its flagship fund Medallion have been outperforming the S&P 500 for decades. He will look at Jim Simons’s portfolio holdings and their recent performance.
Jim Simons has a $64 billion portfolio that is very diversified through the sectors. But, currently, the sectors with the largest stakes are tech and pharmaceuticals. The biggest holdings from the pharma sector are Novo Nordisk and Vertex. From the tech sector Apple, Palantir, NVIDIA, and Verisign have major stakes in their portfolio.
To better understand Simon’s substantial returns we need to dive deeper into his investment approach. For a better understanding of his current portfolio holdings, and how he chooses them, stay with us.
Jim Simons’ Current Portfolio Holdings
Jim Simmons, the founder of Renaissance Technologies hedge fund that currently has over $63 billion, has a very diversified portfolio. Only 9 of his holdings have a stake of 1% or higher in Simon’s entire portfolio. These are:
- Novo Nordisk A/S (CPH:NOVO-B) with 2.73% of the portfolio
This pharmaceutical company from Denmark has been a regular part of Simons’s portfolio since late 2013. From mid 2020 Simons had been offloading its stocks, but he is currently the biggest owner of their stocks with an estimated 16.2 million shares.
Simons invested in this holding $737 million, and the current value of his stake is $1.74 billion. Novo Nordisk has proven to be a good investment, netting the Simons a gain of 136%.
- Apple Inc (NASDAQ:AAPL) with 1.2% of the portfolio
Another long-time part of Simon’s portfolio since 2013. He is the 3td biggest owner of Apple stocks, behind Warren Buffett and Ken Fisher. Simons currently owns 4.1 million Apple’s shares valued at $781 million. This holding brought him returns of roughly 23%.
- Palantir Technologies Inc (NYSE:PLTR) with 1.15% of the portfolio
Palantir as a major innovative force in the tech sector has drawn several big-name investors in recent years. Simons is the biggest owner of Palantir stocks which are valued at $731 million. He has been trading their stocks since Q2 2021, and the total level of his investments is $612 million. For now, this holding has brought Simons a 19% gain.
- Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) with 1.13% of the portfolio
This Boston-based biopharmaceutical company has been a part of Simons’s portfolio since Q3 2013. He is the single biggest owner of their stocks, with currently holding 1.66 million. The holding is valued at $721 million and the total investment is worth $307 million. This holding has proven to be a good long-term choice since it netted 135% gains so far.
- Netflix Inc (NASDAQ:NFLX) with 1.07% of the portfolio
The 5th biggest holding in Simon’s portfolio, Netflix has been an important holding in the last 11 years. He is currently owning 1.38 million shares valued at $681 million. Netflix had its ups and downs, but for now, it has netted Simons’s gain of 49%.
- NVIDIA Corp (NASDAQ:NVDA) with 1.04% of the portfolio
All major investors love to own NVIDIA stocks, and Simon’s didn’t miss out on them. He currently owns 1.21 million NVIDIA shares valued at $662 million. Simons is the 7th largest owner of NVIDIA stocks, and they brought him since 2013 a gain of 65%.
- Berkshire Hathaway Inc Class A (NYSE:BRK.A) with 1.01% of the portfolio
As a perfect diversification option, Simons chose a Buffett’s holding company that offers solid returns. With 1,160 stocks he is one of the biggest holders of Berkshire Hathaway stocks today. His share is valued at $642 million, and it has netted him a gain of 6.7%.
- Verisign, Inc. (NASDAQ:VRSN) with 0.99% of the portfolio
Verisign, a global provider of domain name registry services and internet infrastructure is by its size an 8th Simon’s holding. He owns 3.09 million shares that are currently worth $632 million. This investment proved to be a jackpot, netting Simons a gain of an impressive 141%.
Jim Simons’ Investment Strategy
Jim Simons is known as a quantitative trading pioneer. To fully understand what he brought into the field we need to go a bit back through history. Simons earned a B.S. degree in Mathematics from MIT in 1958 and he got a Ph.D. from the same field in Berkley back in 1961.
During the Vietnam War, Simons worked for the National Security Agency as a code breaker. After that, he switched to teaching and took professor positions at MIT and Harvard. As a pinnacle of his educational career, he was appointed as chairman of the mathematics department at Stony Brook University.
In 1978 Simons founded a hedge fund named Monemetrics. During work in finance, he realized how his mathematical knowledge could be applied to trading in the financial markets. While he worked as a code breaker he gained detailed insight in pattern recognition. He quickly identified the potential that this knowledge can offer in trading.
He was the first hedge fund manager that implement quantitative analysis into his investment strategy at that scale. This approach earned him the nickname “Quant King”.
Quantitative Trading
Soon after his work in Monemetrics in 1982, he founded another hedge fund. He called it Renaissance Technologies (RenTec), and the rest is history. His mathematics and educational background allowed him to attract the top math, physics, and computer science talents. They formed a team that was focused on developing quantitative models used for trading.
Both RenTec and its flagship fund, the Medallion, achieved significant returns year after year. This overachievement can be attributed to several factors that are based on combining math and computer sciences.
Simons and his partners focused on gathering massive amounts of data. After proper analysis, these data can be used for identifying and exploiting price discrepancies between similar assets.
Simon’s approach heavily relied on high-frequency trading. This approach allowed him to gain massive returns on millisecond trades earning from short-term market inefficiencies.
He and his team often develop and use data-driven algorithms combined with complex models to identify potential investment targets.
After Simons and his team started employing quantitative trading, other investment companies realized their potential. This triggered a boom in the investment world, where all major investors started implementing quantitative and HFT trading in their strategies.
This increased the need for professionals from the math and computer science fields, resulting in the pouring of new talent and capital into investment companies.
The HFT strategy, which came out of this development is often deemed as unethical. Many critics point out that it gives an unfair advantage to large companies that can afford to employ talent and use this tech.
But, in the end, most of his work in quantitative trading, and his use of mathematical knowledge is hidden from the public. Rumors were heard that even coders behind the algorithmic trading programs didn’t know what exact logic was behind them.
Mathematical Models
The core of every successful mathematical model is data. Vast amounts of it. Simons understood how important it is to gather as much data from several relevant fields to be able to identify trading and price patterns. He focused on diverse sources of data ranging from stock prices, trade volumes, news feeds, and all sorts of economic indicators.
In the late 80s, he worked together with James Ax, later a partner in founding Renaissance Technologies. After several failed attempts they created a first model with data gathered from the World Bank and Federal Reserve dating back in the 1700s. That quantity of data allowed them to identify patterns of trading movements that repeat in cycles.
With the use of this model, it is possible to predict price movements and earn from them. One other good feature, that is the key to the whole approach, is that the model is dynamic and adjustable. Parameters change with time, and they can be modified and applied to the model.
Buffett and Soros devised their models, and they brought them annual returns in a range of 29% and 32%. Simons’s model averaged over 66% of returns in three decades, so his model is proven to be the most successful.
Data-Driven Analysis
As a part of his wider mathematical model strategy, collecting data is essential. Data is analyzed with algorithms for any subtle price discrepancies between similar assets or in related markets.
Machine learning models used for analysis employ different techniques including:
- Time series analysis that helps with predicting future trends
- Regression analysis which is used for identifying relationships between variables
- An unsupervised learning method is used for uncovering hidden patterns and groupings.
These models are usually employed for HFT trading where trades are conducted at lightning speeds. These models can quickly recognize new patterns and make trading decisions based on short-term signals.
Success Stories of Jim Simons’ Portfolio
Soon after forming RenTec Simons and Ax worked on expanding the original Leonard Baum’s models for use in trading. Together in 1988, they started a core RenTec fund, the Medallion. Initially, the success of their model was overwhelming. But, by April 1989 the losses rose to 30%.
Simons and Ax had a series of talks about the future investment strategy of the fund. Simons wanted to reevaluate the model, and Ax pushed to continue using the same approach. Simons was the majority owner so Ax departed.
Soon after, Simons teamed up with Elwyn Berlekamp, a Berkeley professor to run Medallion. He bought the majority of Ax shares, and together with Henry Laufer redesigned Medallion’s trading system. For this operation, it took them 6 months and during 1990 they generated 55.9% gains. After that he sold his share of stocks to Simons for six times he paid them and returned to the university.
Simons took over Berlekamp’s place and ran the adjusted system. In 1992 it generated 34% gains, and a year later 39.1%. In a period between 1994 and 2014, it achieved an average annual 71.8% return. During the 2020s the returns further increased to an average rate of 76%.
The Medallion fund has been closed for new investors since 1993. Only Medallion’s past and current employees and their families have an opportunity to invest in the fund. The fund bought up the last old investor in 2005. Out of about 275 employees, 100 have a status of qualified purchasers which means that their net worth is at least $5 million. The rest of the employees are accredited investors valued at a minimum of $1 million.
When we take all history performance data we come to a figure of over $100 billion earned by this fund for their investors. Between January 1993 and April 2005, the fund had only 17 negative months, and three losing quarters. These performances had not been achieved by any other hedge fund.
One factor that can be attributed to this consistent overachieving is Simon’s approach to investing. In all funds that he managed, hedge fund managers do not make investment decisions based on their emotions and personal judgment. The crucial trigger for an investment decision lies in the numbers that come as a result of mathematical algorithms and the massive amounts of data they use.
Take A Look At Jim Simons’ Trading Strategy Explained:
Portfolio Management
Asset Classes
RenTec portfolio is highly diversified both by utilizing different asset classes, and by not limiting themselves to a specific geographic region.
RenTec managers invest in equities like stocks from markets all across the globe. They utilize both small and large-cap investments.
Their approach to trading currencies is by focusing on exploiting price fluctuations when trading in major and minor currency pairs. Recently, he also included trading cryptocurrencies in his portfolio.
Their diversified portfolio often includes commodities. Energy commodities like oil and natural gas offer a diversification edge that brings additional resilience of the portfolio to the market volatility.
Precious metals like gold and silver and actively traded agricultural products are also frequently traded. They are suitable for high-frequency trading and short-term earning opportunities.
An important factor to consider when it comes to investment targets is the liquidity of assets. Jim Simons does not frequently resort to investing in illiquid assets and prefers highly liquid assets.
This is due to his core high-frequency trading strategy, which requires trading with liquid assets.
Usually, trades are conducted very fast, and in these situations, there is no place for illiquid assets.
RenTec in October 2023 launched Renaissance Institutional Futures Fund implying funds raised interest in investing beyond traditional asset classes.
Risk Management
The first risk mitigation principle that Jim Simons upholds is high diversification. He and his funds spread their investments across different asset classes, markets, and sometimes individual security types.
They are a globally oriented corporation, which means that their investments are hitting all major global markets, further minimizing risk from sudden market twists. With this dense diversification, the fund lowers the risk of major losses.
By avoiding concentration and taking large positions the risk of investment is even lower. Their use of position-sizing strategies is actively limiting the size of capital that is allocated for specific investments. By doing so, if even a certain holding is going through a rough patch, it would not have a major impact on the whole portfolio.
As a final security system, the use of stop-loss orders is limiting potentially high losses in unpredicted risk cases.
RenTec risk management teams are also well aware of the importance of stress testing. Before they decide to commit larger amounts of capital into a holding, they test it in different ways. They subject the target investment to different market conditions and monitor how it would hold against it. Only after it passes the tests, the investment is considered.
But, an often disregarded factor, the monitoring of the performance is not forgotten. Both managers and algorithms are monitoring the current condition of all holdings, making necessary adjustments accordingly.
Diversification
Jim Simons heavily relies on diversification as a risk management strategy. He doesn’t prefer large holdings, and his portfolio usually has several thousand small holdings. He diversified all the investments across the board, both in assets and geographically, resulting in minimal risk for losses.
Simons also aims to diversify the portfolio by industries. His current portfolio has this industry structure:
- Biotechnology/Healthcare – 8.13% of the portfolio
- Software – Infrastructure/Technology – 6.81% of the portfolio
- Software – Applications/Technology – 4.7% of the portfolio
- Drug Manufacturers/Healthcare – 3.76% of the portfolio
- ETFs – 2.55% of the portfolio
- Packaged Foods/Consumer Defensive – 2.42% of the portfolio
- Auto Manufacturers/Consumer Cyclical – 2.33 of the portfolio.
Lessons from Jim Simons
Key Takeaways
By analyzing his long and productive career we can identify stepping stones that can help anyone who wants to start quantitative trading. Some key takeaways from this approach include:
- Focus on data and analytics. RenTec access to data may be out of your reach but do not forget that analyzing data is essential. Finding large and relevant batches of data allows you to identify potential trading and price variation patterns. Using algorithms to analyze data gives the best results, and from there you can start working on your models which you will follow
- Using a quantitative approach. Quantitative approaches and their models are complex and demand solid mathematical knowledge. But, one of their often overlooked benefits is making more objective investment decisions. Start with using tools and resources for quantitative analysis that are closer to your current knowledge level
- Diversification is a priority. Although Jim Simons used his preferred strategies, he never forgot the power of diversification. Diversification in asset classes, and if possible in the geographic sense brings lower risk to the portfolio
- Invest in liquid assets. If you want to follow the road of Jim Simons you would not relate to investing in debt and other types of illiquid assets. For quick sales, you must have a portfolio made of highly liquid holdings
- Be ready for constant learning and adaptation. This is especially the case when focusing strategy on quantitative approach and use of algorithms. Be ready to refine the algorithms and always stay on top of current market trends.
Investment Tips
Jim Simons has five guiding principles in life from which novice investors can learn a lot:
- Don’t follow the crowd. Originality is key.
- Partner with good people. The task is too big for one person to handle alone.
- Let beauty guide you. There is beauty in math. Well-run businesses are beautiful.
- It takes persistence. It takes time for good things to become a reality.
- Neither good nor bad luck can be avoided. Just hope for good fortune.
Among these tips, he offered several tips in the book The Man Who Solved The Market by Gregory Zuckerman. Both experienced and beginner traders can learn from these:
- Aim for the market-neutral portfolio
- Trade frequent
- Trade in different markets to get uncorrelated returns
- Diversify to different markets and time frames
- Many data points are required to make a meaningful trading/investment strategy
- The logical strategies are arbed away
- Mean reversion is the lowest-hanging fruit
- Leverage bites
- Most quant traders fail.
Case Studies
Notable Investments
We will pay special attention to recent investments that brought significant returns.
Although a small investment Soleno Therapeutic Holding brought him a massive gain of 3705%. Simons invested into this holding a mere $67.6 thousand and he managed to turn that investment into $2.57 million.
Jim Simons’s investment into Camtek Ltd, a manufacturer of meteorology and inspection equipment, netted him 1227% gains. His total investment into this holding was $3.32 million, and Simons turned it into $46.4 million.
Corvel, a provider of risk management solutions for work compensation, auto, health, and disability management industries was another hit. Simons invested a total of $23.3 million and made $167 million so far.
UFP Technologies, the manufacturer of medical device packaging solutions and medical components is one of high-grossing holdings. Simons has been trading their stocks since 2013 and he invested a total of $8.96 million. He turned this investment into a gain of 535% and $56.9 million.
Performance Analysis
Jim Simons funds are known for their high return rates. He didn’t have a negative year back from 1989 and returns were always higher than 30%. His best years were 2000, 2007, and 2008, with 128.1%, 136.6%, and 152.1% returns.
In the 90s the returns fluctuated between 31.5% and 93.4%, and many thought that no one could beat that. But in the last decade, Simons fund delivered even more. Between 2010 and 2018 the lowest return was in 2010 with 57.5%, and highest in 2013 with 88.8%.
When combining data between 1988 and 2018 average gross returns of Jim Simons fund was 66.1% before fees. No one managed to deliver those kinds of returns so constantly. Even giants like George Soros, Ken Griffin, and Ray Dalio cannot compete with these numbers.
FAQs
What Company Does Jim Simons Own?
Jim Simons holds a significant stake in Renaissance Technologies as its founder and former CEO. He constantly held a significant stake in the fund, but in 2020 he stepped down from a CEO position and reduced his ownership even further during 2021.
What Stocks Does the Medallion Fund Own?
Medallion Fund has a very diverse portfolio with over 3,000 holdings. Only 10 holdings weigh over 1% of the entire portfolio, including Novo Nordisk, Apple, Palantir, and Vertex.
What Is Jim Simons’ Formula?
A Simons formula comes from the field of differential geometry. It represents the fundamental equation in studies of minimal submanifolds. He discovered it back in 1968 and it has a significant theoretical importance, but is not connected with the mathematical models he is using for hedge fund trading.
Final Thoughts
When thinking about successful hedge fund managers, it is impossible to overlook Jim Simons. He revolutionized the investment process by implementing complex mathematical models, and more recently machine learning. His core principle which is based on analyzing vast amounts of data and using them to create mathematical models has proven to be very effective.
His portfolio outperformed everybody in a three-decade period. No one came even close. Critics often point out the unfair advantage that large companies have over retail investors, and maybe they do have a point. But, still, as time goes by, funds managed by Simons are creating even higher returns.
A career and approach that certainly demands a deep analysis, but since most of the crucial data is not available to the public, we can ponder about, and try to figure out what he is doing so right.
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