What Is SEC Form 13F?
SEC Form 13F is a quarterly report that is filed by institutional investment managers with at least $100 million in equity assets under management. It discloses their U.S. equity holdings to the Securities and Exchange Commission (SEC) and provides insights into what the smart money is doing.
Who Should File SEC Form 13F?
Firms that are required to file 13Fs include mutual funds, hedge funds, trust companies, pension funds, insurance companies and registered investment advisers. The SEC publishes a list on a quarterly basis of the 13(f) securities that must be included in the filing.
How to File SEC Form 13F
Filers can use the SEC's EDGAR (Electronic Data Gathering, Analysis and Retrieval) system to submit SEC Form 13F. It must be filed within 45 days of the end of a calendar quarter and include information about each section 13(f) security over which the institutional investment manager has investment discretion, including the name and class, the number of shares as of the end of the quarter being reported on and the total market value.
Key Issues Around SEC Form 13F
SEC Form 13F filings provide investors with an inside look at the holdings of Wall Street's top stock pickers and their asset allocation strategies. Individual investors and other institutional investors, who want to replicate the strategies of rock star hedge fund managers like Daniel Loeb, David Tepper, David Einhorn, Carl Icahn or Seth Klarman, scrutinize 13F filings to generate investment ideas. And the financial press often reports on what these fund managers have been buying and selling. By looking at the top holdings of some managers, investors hope to put together a best-ideas portfolio without paying management fees. But there are a number of problems with that strategy.
Investors may hope to copy the investment ideas they glean from the SEC Form 13F reports of Wall Street's top stock pickers, but there are drawbacks, including the fact that the filing data may not be 100% reliable.
One risk for both professional and retail investors is that the tendency of hedge funds to borrow investment ideas from one another, as well as the bandwagon effect, can lead to crowded trades and overvalued stocks. Hedge fund managers are no more immune to behavioral biases like herd behavior than anyone else. After all, if you are a fund manager, it is safer to be wrong with the majority than to be right alone.
A Misleading Picture
Another issue relates to the fact that funds are only required to report their long positions on SEC 13F, in addition to their put and call options, American Depositary Receipts (ADRs) and convertible notes. But hedge funds also purchase bonds and foreign equities, and sell stocks short. This can give a misleading picture, as some funds generate most of their returns from their short selling, only using long positions as hedges. Also, 13Fs only track investments made on domestic exchanges.
Unreliable and Backward Looking Data
What’s more, the SEC itself admits that 13F filings are not necessarily reliable because no one at the SEC analyzes the content for accuracy and completeness. That means investors should take them with a big pinch of salt. After all, the infamous fraudster Bernard Madoff dutifully filed 13F forms every quarter.
Another major issue with 13F reports is that they are filed up to 45 days after the end of a quarter. And most managers submit their 13Fs as late as possible because they do not want to tip off rivals about what they are doing. By the time other investors get their hands on those 13Fs, they are looking at stock purchases that may have been made more than four months prior to the filing. Seeing how professional fund managers have been investing in the previous few months can be insightful, but it is backward looking. If the smart money is already fully invested in a stock, retail investors are likely to be late to the party by the time they learn about it.
- SEC Form 13F must be filed quarterly by institutional investment managers with at least $100 million in section 13(f) securities.
- Section 13(f) filings show equity securities trading on an exchange, closed-end shares of investment companies, some equity options/ warrants, and convertible debt securities.
- Investors can search the SEC's EDGAR database for SEC Form 13F filings to get an inside look at Wall Street's top stock pickers' asset allocation strategies.
- Drawbacks of trying to imitate those strategies include the unreliability of the data and the fact that Form 13F only tracks equities traded on domestic exchanges.