If it's February 15, May 15, August 15, or November 15 of any given year, then it's 13F day.

The Securities and Exchange Commission (SEC), an agency within the United States federal government responsible for regulating the trading of stocks and bonds, requires that all hedge funds submit a report of their long positions and other investments each quarter. The reports, filed no more than 45 days after the end of the quarter, are known as 13F filings. Besides long positions, funds are required to report their put and call options, American Depositary Receipts (ADRs), and convertible notes in each quarter's 13F form. This leaves a number of other areas – including short positions, cash and a variety of other asset classes – that hedge funds are not required to report as part of the 13F filing. Investors outside of hedge funds commonly refer to each quarter's 13F reports as a way of tracking how those funds chose to invest over the previous few months. While this can be useful in some ways, it is not necessarily the safest way to make investment decisions.

Only Part of the Investment Story

The fact that 13F filings only tell a portion of the investment story means that observers should be aware of what is missing, as well as what type of investment strategy a hedge fund utilizes, whenever they look to those 13Fs 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 (used for hedging purposes) unidentified. These funds may rely on these core long positions for a substantial part of their returns; thus, an observer can often see where and when those funds were able to succeed. On the other hand, some funds are net short, meaning that the scenario is flipped and includes short positions as the core of a portfolio with longs as hedges. In this case, seeing only the long positions does not give an accurate view of the investment strategy of a fund. Knowing the nature of a particular funds investment strategy is therefore crucial when reading its 13F filings.

Domestic Exchanges Only

Another important element of the 13F report is that it only tracks activity conducted on domestic exchanges. With the exception of ADRs, 13Fs do not show a fund's holdings via international exchanges. For a fund that combines domestic and international investments in roughly equal parts, then, the 13F will only show half of the investment portfolio. Because of this, observers of 13Fs typically focus on funds that emphasize domestic investments only.

Looking to the Past

Because 13F reports are filed up to 45 days after the end of a quarter, they may in some cases reflect investment decisions made more than four months prior to the filing. Those considering investment decisions based on 13F results are best served by remembering that 13Fs are glimpses into past trends and strategies. These may not be useful any longer at the time the 13F is filed.