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When a large hedge fund discloses a stake in a company through a 13F filing, it's news that can substantially move a stock.
This week saw a host of high-profile fund managers disclose stakes in SEC filings.
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Warren Buffett’s Berkshire Hathaway Inc. Class A (NYSE: BRK-A) disclosed a $358-million stake in Israeli drug company Teva Pharmaceuticals Industries Ltd (ADR) (NYSE:TEVA), which subsequently moved the stock up 8 percent. Similarly, George Soros' 13F filing showed an increased stake in Centurylink Inc (NYSE:CTL), also sending shares up 8 percent.
When it's disclosed that a fund manager initiated or added to a position in a particular stock, it can create some added conviction to an investor's holdings. With the amount of time and money hedge funds spend researching investments, many managers wish they did not have to legally disclose their positions, said hedge fund expert Don Steinbrugge, the CEO of Agecroft Partners.
"Many hedge fund managers are highly upset at this regulation because they spend a great deal of time and expense in researching securities to build a portfolio that they believe will generate above-market, risk-adjusted returns," Steinbrugge said.
"These hedge fund managers view their portfolio as their firm's intellectual capital, which has value similar to that of movie rights, music rights, or book rights," he said. “By replicating some of the stocks they buy in your portfolio directly, you avoid paying hedge fund fees."
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Limitations
Piggybacking on the investment choices made by some of the best stock pickers in the world solely based on SEC filings isn't without limitations. 13F filings are released once per quarter and have a significant lag time — up to 135 days separate when a fund buys a stock and when the public finds out. By that time, the fund may have already sold their position.
“You don’t necessarily know the reason the company went long. Sometimes it can be to offset a short position and you are not seeing things on the short side, so you do not understand why funds really buy a stock. You don’t know what price they bought it at, and due to the lag, you don’t know if the opinion has changed since the position was taken,” Steinbrugge said.
Making stock market choices on the basis of a 13F filing may not be a complete investment style — but an expert's vote of confidwence on an equity position can be comforting nonetheless.
Related Links:
Q4 13F Roundup: How Buffett, Einhorn, Loeb, And Others Adjusted Their Portfolio
Here's Why The Number Of Cryptocurrency Hedge Funds Could Triple In 2018
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.