Investors have various strategies when it comes to making smart decisions and utilizing the publicly available Securities and Exchange Commission’s Form 13F information is one very effective research method.
But what exactly is Form 13F? SEC Form 13F is a quarterly report that must be filed by institutional investment managers. It’s used to disclose their equity holdings and can provide insight into what their money is doing in the market.
The form must be filed no more than 45 days after the end of the quarter and reports all long positions, call options, convertible notes, and American depositary receipts. Excluded from 13F filings, however, are short positions, cash, and a variety of other asset classes.
Who Is Subject to 13F Filing Requirements?
All institutions and investment managers with at least $100 million in assets under management must file quarterly 13Fs.
As such, most venture capital firms and hedge funds, such as New York’s Armistice Capital, which as of Q2 2023 had reported $6,911,418,755 in managed 13F securities, will be required to make quarterly 13F filings. Armistice Capital’s 13F securities rose to this level from $5,732,219,000 for the same period in 2022.
The $100 million limit applies to all accounts where the investment manager has authority. This individual is a genuine person or entity that purchases securities for an account or manages assets for the benefit of another natural person or organization according to the SEC.
What Information Is Included on a 13F?
The SEC requires that all Form 13F filings include the following information:
— The issuer name of each instrument, listed alphabetically.
— A description of the listed security class.
— The number of shares owned.
— The true market value of the listed securities.
Using 13F Information to Your Benefit
13F filing information can be very useful to investors and analysts because it shows how hedge funds, venture capitalists, and other financial firms chose to invest over the previous few months. That said, however, this information is obviously not live so it’s important to be careful not to overly rely on it and rather use it to spot patterns and trends over time.
For example, when we study the portfolio of Armistice Capital, we can learn about the firm’s investment strategies. We can see that Armistice deals primarily in health care investments and over the past three quarters, its sector allocation has exceeded 60% for health care. Looking at the 13F of another hedge fund, Vivo Capital LLC, we can see that their entire investment history has been made up by healthcare at over 80%, with significant holdings in Sinovac Biotech Ltd. This information can help investors to create their own sector-balanced portfolios.
The fact that 13F filings only show part of a company’s investment story means that analysts and investors should also keep in mind what could be missing if they look to 13F filings for investment ideas.
In the case of many funds that are net long, a 13F will show changes in those funds’ core positions while leaving the shorts, which are typically used for hedging purposes, unidentified. These funds might rely on these core long positions for a large chunk of their returns, which can give observers an idea of where and when those funds succeeded.
That said, some funds are net short, which means that this scenario is flipped on its head and includes short positions as a portfolio’s core with longs as hedges. In this situation, seeing only the long positions doesn’t give an accurate view of a fund’s investment strategy. As such, you need to know the nature of a particular fund’s investment strategy before relying too much on 13F filings.
In addition, you need to be mindful that 13F filings are made up to 45 days after the end of a quarter. This means that in some cases, filings may reflect investment decisions that are more than four months old. Investors who are considering basing their decisions on 13F results will therefore be best served by remembering that 13Fs are glimpses into the past and may potentially be useless by the time that the 13F is filed.
