Each quarter, the SEC requires that hedge funds file a 13F form detailing each company's holdings in a variety of areas and categories. Investors commonly turn to these filings, which are available to the public and widely discussed, for ideas about where some of the most wealthy and prominent financial leaders are putting their money. Among the most tracked hedge fund managers are those who lead so-called activist funds, firms that acquire a significant portion of a company's stock so that they may exert influence over that company's practices and leadership. (For more, see: What Is a 13F and When Is It Useful?)

Typically, activist funds are considered to have made a play of this type when they invest in 5% or more of a company's total shares, triggering a requirement that they file a form 13D. Form 13Ds are similar to 13Fs but are more stringent; an investor with a large stake in a company must report all changes in that position within just 10 days of any action, meaning that it's much easier for outsiders to see what's happening much closer to real time than in the case of a 13F. Recently, a new strategy among activist investors has allowed them to continue to influence target companies while at the same time avoiding revealing investment details with 13D filings.

Mid-cap Company Targets

According to a report by Activistmonitor, a platform owned by Mergermarket, activist managers have increasingly been targeting companies with which they can achieve their goals while holding less than 5% of total shares. Activistmonitor analysts found that 38% of activist fund campaigns so far in 2016 have followed this approach, as opposed to just 26% over the entirety of 2015. By staying below the 5% threshold, hedge funds following this new strategy avoid the requirements of the 13D report and instead denote all activity in their target campaigns at the quarterly 13F filings.

Activistmonitor has also noted a predilection among activist investors for targeting mid-cap companies, where investor funds go further in purchasing a sizable position, as opposed to large-scale campaigns with major companies. (For more, see: Activist Investors: A Good or Bad Thing?)

13F May Allow More Room for Strategy

Not all activist campaigns are the same. Some are focused on an aggressive takeover of certain company policies or a board of directors, while others aim for a more subtle approach involving encouraging and guiding certain business practices. For those campaigns in which a 5% or greater stake is involved, target companies would be well aware of a fund's intentions and everyone both directly involved and otherwise would be aware of exactly what is happening through 13D filings. When funds hold a lower stake in a company, it is not immediately clear what their goals are. The 13F reports do not dictate a fund's intentions, and activist investors utilizing this sub-5% strategy are likely to capitalize on this opacity.