13F's

13F’s are filings where every investor with at least $100M of assets under management has to file a quarterly position of every stock they own with the Securities and Exchange Commission. Investors have 45 days from when the quarter ends to file. So for the 4^th quarter that just ended, firms had until Feb 14^th to file their positions. Filings also give companies confirmation to see if meetings management had with potential buy side firms come to fruition and they initiate positions.

Plain vanilla institutions will file their mutual funds and ETF’s monthly in an effort to be more transparent for their investors such as Blackrock, State Street or Fidelity. However, the brunt of the filings do not come in until we get close to the end of the 45 day period. For some of the more well-known activist hedge funds, they will wait until the very last day because once they file, other investors whether they are other institutions or mom and pop investors may follow their idea. For some of the more well known hedge funds or activists, an idea of theirs to get into a certain stock or exiting another can swing a price in the underlying security. They are looking to hide their position from the street for as long as possible before other investors get on the bandwagon. Algorithms are also written to scan the SEC site for filings and react accordingly.  

A recent example of this can be found in the airlines sector. Back in November for 3Q 13F filings, Warren Buffet’s Berkshire Hathaway in their filing initiated positions in 3 airlines and publicly announced a position in a 4^th. In the latest filing, he increased his positions at the 4 airlines and is now the #1 holder in 2 of them and #2 in the other 2. With a well-known investor such as Berkshire investing in the airlines, this grabbed the attention of the investor community. In the following trading session, we witnessed the entire airline sector higher. Even the airlines that Berkshire didn’t buy into finished the day higher.   

From the latest 13F filings, we also saw Hedge Funds buy the Financials and Health Care sector while they sold the Consumer Staples and Information Technology sector. Hedge funds likely believe that Financials under the Trump administration will increase on hopes of interest rates rising and fiscal stimulus giving financials ample opportunity to increase profits. Health care will potentially go up on the rhetoric of repeal and replace of the Affordable Care Act. 

13F data also showed that hedge funds purchased small caps over mega and large caps. This is on the thought that the Trump administration will help lower the corporate tax rate and pull back regulations that adversely affect many small caps compared to the large or mega caps. This is also responsible for the Russell 2000 increasing almost 14% from Election Day to the end of the year, outpacing the Dow, S&P.

For the S&P 500, the top 50 institutional shareholders now account for 78% of institutional shares compared to 75% in previous years. In terms of style, Index led the pack and increased its lead compared to Growth, Value and GARP. As hedge funds and other firms have struggled to beat alpha, investors have been moving money from active funds to passive index funds as fees on passive funds have dropped and hedge funds 2 and 20 model struggles to compete.