Study SEC ’13F’ filings to scrutinize investment managers

Study SEC ’13F’ filings to scrutinize investment managers

We love our crime and detective stories. The CSI, NCIS, and Law & Order franchises are extremely popular, and whenever I’m at the gym, it’s a guarantee that an episode of one of these shows is on the TV, visible from my treadmill.

The work of TV special agents, forensic scientists, detectives and prosecutors seems terribly exciting. However, the reality is that solving cases often involves a lot of work and hard work.

Financial detectives reviewing public company records have the same experience. They can certainly reveal important information, but it takes work. I have to admit, though, that one form of investigation – the 13F – can be quite interesting. You can search for them using the SEC’s EDGAR database (sec.gov/edgar).

The 13F is filed quarterly by institutional investment managers that have at least $100 million in assets under management. This group includes insurance companies, hedge funds, pension funds, mutual funds, registered investment advisors and others. Intended to provide transparency to the holdings of large investors, the 13F includes the shares held by the institution as well as the size of those holdings.

For investors who want to know which horses the pundits are backing, this is a good starting point. Some Main Street investors have a theory that if they know what highly skilled professionals are doing, they can emulate their portfolio and earn big returns. They can also compare quarterly 13Fs and note not only new holdings, but also whether managers have reduced existing positions.

I know professional investment managers who review their peers’ files, but you have to be careful not to draw too many conclusions from the 13F. First of all, there is a significant time lag between when the holdings snapshot is taken and when you can access it. Managers have up to 45 days after the end of the quarter to file their 13F.

So if a stock purchase was made on April 1st for example, you might not find out about it until mid-August or so. Many things can change in the market during this time. For all you know, the manager may have sold the entire stake in July.

Another key problem is that you don’t know why the manager is holding the stock. Doing trades based on 13F is like flying blind. If you don’t know why you’re buying or selling stocks, I’d suggest exposing yourself to unnecessary risk.

Those issues aside, I believe the 13F is an interesting document. Although mutual funds and some other institutional investors regularly report their holdings, the document may provide a more complete picture of their philosophy.

You can also use 13Fs as a source of stock ideas. Most institutional investors own a lot of stocks you’ve heard of—Apple, Meta, Alphabet, etc. – but I’m constantly surprised by holdings I know nothing about. When a 13F stock comes along that has interesting fundamentals, that’s when the real detective work begins.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a member of Forbes’ 2018 Next Generation Advisors list, and a financial professional at Avantax Investment ServicesSM. Evan leads a team of retirement transition strategists for clients who consider themselves the “millionaire next door.” He can be reached at 941-500-5122 or [email protected]. 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 insurance agency affiliated with Avantax. 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.

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