What is the SEC Form 13F?
Securities and Exchange Commission (SEC) Form 13F is a quarterly report that must be filed by all institutional investment managers with at least $ 100 million in assets under management. It discloses your equity holdings and can provide insight into what the smart money is doing in the market. However, studies have found that 13F submissions are also seriously flawed and cannot be taken at face value.
- SEC Form 13F must be filed quarterly by institutional investment managers with at least $ 100 million in assets under management.
- Congress intended these presentations to provide transparency about the holdings of the country’s largest investors.
- Smaller investors frequently use these presentations to determine what the “smart money” is doing in the market, but there are serious problems with the reliability and timeliness of the data.
Understanding SEC Form 13F
Congress created requirement 13F in 1975. His intention was to provide the American public with an insight into the holdings of the nation’s largest institutional investors. Lawmakers believed this would increase investor confidence in the integrity of the nation’s financial markets. Companies that are considered institutional investment managers include mutual funds, hedge funds, trust companies, pension funds, insurance companies, and registered investment advisers.
Because the 13F filings give investors a look at the holdings of the major Wall Street stock pickers, many smaller investors have tried to use the presentations as a guide for their own investment strategies. Their rationale is that the nation’s largest institutional investors are not only presumably the smartest, but their size also gives them the power to move the markets. Therefore, investing in the same stocks, or selling the same stocks, makes sense as a strategy.
Key issues with Form 13F
Smaller investors who want to replicate the strategies of rock star money managers like Daniel Loeb, David Tepper or Seth Klarman look at 13F submissions. And the financial press often reports on what these fund managers have been buying and selling by comparing changes in quarterly filings. But there are a number of problems with 13F presentations that require caution.
The SEC has recognized problems with the reliability of the information on forms 13F.
Studies have found the “pervasive presence of significant reporting errors” in 13F submissions. The SEC itself has recognized that 13F filings are not necessarily trustworthy because no one at the SEC reviews the content for accuracy and completeness. After all, the infamous con artist Bernard Madoff diligently filed 13F forms every quarter.
Another major problem with 13F reports is that they are archived for up to 45 days after the end of a quarter. And most managers send their 13Fs as late as possible because they don’t want to alert rivals about what they are doing. By the time other investors get their hands on those 13Fs, they’ll be considering stock purchases that may have been made more than four months prior to filing. If the smart money is already fully invested in a stock, smaller investors are likely to be late to the party when they find out.
Some investor groups are pushing to reform the 13F process, saying the forms must be filed monthly, within 15 days of the end of each month.
A risk for both professional and retail investors is the tendency for money managers to borrow investment ideas from each other. Hedge fund managers are no more immune to behavioral biases than anyone else. After all, if you are a fund manager, it is safer to be wrong with the majority than to be wrong alone. This can lead to crowded trading and overvalued stocks. And if small investors are late to the party entering a trade, they are likely to be late.
An incomplete image
Another problem with 13F filings is that funds are only required to report long positions, in addition to your call and put options, US deposit receipts (ADRs), and convertible notes. This can give an incomplete and even misleading picture, because some funds generate most of their returns from their short sales and only use long positions as hedges. There is no way to distinguish these hedges from genuine long positions in 13F forms.