Study SEC ’13F’ filings to scrutinize investment managers
We love our crime and detective stories. The “CSI,” “NCIS,” and “Law & Order” franchises are hugely popular, and whenever I’m at the gym, it’s a guarantee that an episode from one of these shows is on a TV visible from my treadmill.
The work of the TV special agents, forensic experts, detectives, and prosecutors seems awfully exciting. The reality, however, is that a lot of footwork and drudgery often is involved with solving cases.
Financial detectives looking through company public filing have the same experience. They can unearth important information, for sure, but it takes work. I have to admit, though, that one form of investigation – the 13F – can be pretty interesting. You can search for them using the SEC’s EDGAR database (sec.gov/edgar).
The 13F is filed quarterly by institutional investment managers who have at least $100 million in assets under management. That group includes insurance companies, hedge funds, pension funds, mutual funds, registered investment advisers, and others. Intended to provide transparency to the holdings of large investors, a 13F comprises the equities held by the institution as well the size of these stakes.
For investors who want to know which horses the experts are backing, this is a nice starting point. Some Main Street investors have a theory that if they know what the highly trained professionals are doing, they can emulate their portfolio and earn great returns. They might also compare quarterly 13Fs and note not only new holdings but also whether the managers trimmed existing positions.
I know professional investment managers who comb through filings of their peers, but you need to be careful not to draw too many conclusions from 13Fs. First of all, there’s a significant time lag between when the snapshot of holdings was taken and when you have access to it. Managers have up to 45 days after a quarter ends to file their 13Fs.
So, if a stock purchase was made on April 1, for example, you might not learn of it until mid-August or so. A lot can change in the market during that time. For all you know, the manager might have sold the entire stake in July.
Another key issue is that you don’t know why the manager holds the equities. Making trades based on a 13F is like flying blind. If you don’t know why you’re buying or selling a stock, I’d suggest you’re exposing yourself to unnecessary risk.
Those issues aside, I do believe the 13F is an interesting document. Though mutual funds and some other institutional investors regularly report their holdings, the document can provide a fuller picture of their philosophy.
You can use 13Fs as a source of stock ideas as well. Most institutional investors own a lot of stocks you’ve heard of – Apple, Meta, Alphabet, and so on – but I’m constantly surprised by holdings I don’t know anything about. When a stock shows up on a 13F that has interesting fundamentals, that’s when the real detective work begins.
Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or firstname.lastname@example.org. Read more of his insights at heraldtribune.com/business. Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, insurance services offered through an Avantax-affiliated insurance agency. 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.