Form 13F-HR

The Rules

Every investment manager who oversees a stock portfolio worth $100 million or more, a group that includes fund managers, insurance companies, brokers, pension managers and companies that manage equity portfolios, must file a Form 13F every quarter.

The filing lists the stocks the manager owns, small stakes excluded (fewer than 10,000 shares and a market value below $200,000). The form includes the manager’s name (typically a firm, not an individual), the name and class of every stock, the number of shares owned, and the total market value of each holding as of the end of the quarter. But the form does not list bonds, derivatives or short positions.

What to Look For

Form 13F reveals the portfolio manager’s £favorite stocks, making it a potentially valuable source of stock ideas. (Of course that’s based on the premise that stockpicking is a good way to invest, which may be a fallacy.) It can also tip you off that a manager has sold shares — a sign that you may want to think about selling too. When parsing these filings, keep your eye out for the following:

• How the 13F compares to the previous filing. A 13F is a snapshot of a portfolio on a certain date. To see whether an investor is increasing or decreasing a bet on a certain stock, compare 13Fs from quarter to quarter. Say you think highly of value investor Bruce Berkowitz, who runs Fairholme Capital Management. Fairholme’s first-quarter 2009 13F shows that it owns 1.3 million shares of Canadian Natural Resources Ltd., an oil and natural gas exploration and production company. The 13F for the following quarter shows no shares of the firm whatsoever — suggesting Berkowitz decided it was time to sell. The stock gained more than 50 percent in the coming months, but maybe Berkowitz invested the proceeds in an even stronger performer.
• Long-term trends. Going back even further in time can be useful, too. “If Berkshire Hathaway’s (BRK-A) 13F shows that its largest position is in Coca Cola (KO), you may think that’s Warren Buffet’s favorite stock and feel compelled to buy,” says Jeff Annello, a portfolio manager with Complete Growth Investor LLC, who regularly uses 13Fs as a source of investment ideas. “But you might not realize that he’s owned that stock since the ’80s, and he’s not actively buying it right now.”
• What’s missing. A manager’s portfolio may contain much more than equities, and those other investments aren’t reported on Form 13F. Consider value investor Seth Klarman of the Baupost Group. The largest holding reported on the firm’s June 30, 2009 13F is News Corp., which represented 18 percent of the total assets Klarman reported. You might think that’s a huge bet on the stock. But Klarman generally holds less than half his portfolio in equities, with the rest in cash, fixed income and real estate — so his News Corp. holding may not be as dramatic as it first appears.
• The fund company vs. the manager. You may admire a particular fund manager at Fidelity — but good luck finding that manager’s picks on Form 13F. Like other companies with multiple managers, Fidelity’s 13F includes all its stock holdings in alphabetical order, without identifying which manager owns which stocks. The upshot: You’ll usually get more insight from the13Fs of boutique money managers, where you can be reasonably sure who’s making the trades. For other funds, check the fund’s own website.