13F Reports: Focus on the Why

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Over the years, the U.S. Securities and Exchange Commission (SEC) has created and amended multiple reporting rules for most equity investor classes. For example, shareholders who acquire over 5% of the outstanding equity shares, which falls under the Exchange Act, must file beneficial owner reports on Schedule 13D or 13G. Company directors and officers, as well as shareholders who own more than 10% of a class of a company’s equity securities, are required to report most of their transactions involving the equity to the SEC on Forms 3, 4, or 5. For both examples, the reporting period is five and two days, respectively.

In 1975, Congress passed Section 13(f) of the Securities Exchange Act to increase the public availability of information regarding the securities holdings of institutional investors. This section requires investment managers with at least $100 million in assets under management to file Form 13F within 45 days after the last day of the calendar quarter.

Most public companies monitor these reports to find out who is buying and selling their stock, but the timing, or lack thereof, of these reports is a significant limitation. Because institutional investors have 45 days to file Form 13F, and most file on the last day due to competitive reasons, the data will be at least a month and a half stale. Depending on the investor, some positions may have been opened and closed within the quarter, which would be excluded from a 13F filing.

With timing potentially hindering the value of 13F reports, why should companies bother with them? The answer is simple: instead of just viewing which investors bought or sold, companies should focus on why these investors altered their position in the stock.

There are many reasons why investors buy and sell stocks, and most will not reveal why they made their decisions. Luckily for companies, analyzing 13F data with proprietary investor meeting notes should help to determine the “why.”

13F Reports of Peer Groups
Institutional investors buy and sell equities for many reasons, including lowering or increasing sector exposure. Comparing changes in holdings to its peers may reveal a change in sector or market capitalization exposure

Monitoring the Top 50 Sector Holders
Like following the peer group changes, monitoring the sector holdings of the Top 50 institutional holders of the sector may uncover sector or market capitalization trends. Taking this a step further, determining which type of institutional investor, e.g., mutual fund, hedge fund, etc., could help determine where the “smart money” is investing.

Institutional Investor Meetings

  • During most quarters, company management will host investor meetings during investment banking conferences, non-deal roadshows, or virtual meetings. Keeping track of every investor meeting with detailed notes is important on many levels. A change in tone or the type of questions asked by an investor could be a hint on what an investor is thinking about a company.
  • Another potential data point is if an investor who has met with the company multiple times in the past decides not to request a meeting during an NDR or investor conference.

Fund Flows
Many retail investors will reallocate their investments based on the latest trend or “hot” sector. With the advent of sector-specific mutual funds and ETFs, investors can quickly increase or decrease exposure to most sectors. Tracking fund flows and total assets for certain funds and ETFs could point to a systemic change rather than a company-specific issue.

It’s simple: strong business fundamentals attract buyers, and weakening fundamentals usually lead to selling.

Institutional investors buy and sell equities for many different reasons. While 13F reports give companies a view of their holders four times a year, it doesn’t tell the whole story. Comparing 13F data of a company’s peer group and coupling it with proprietary investor meeting data could shed some light on why some investors buy and sell. If used correctly, 13F reports can be useful and help shape a company’s investor relations program.

Gilmartin Group has extensive experience working with both private and public companies across the LSTDx, MedTech, Biotech and Digital Health spaces. To find out more about how we strategically partner with our clients, please contact our team today.

Authored by: Greg Chodaczek, Managing Director, Gilmartin Group

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