Key Takeaways
- Tracking hedge fund holdings helps in identifying potential investment opportunities or anticipating a potential market trend.
- Professionals from a variety of industries are on the lookout for hedge funds and their activities. Managers from ETFs, mutual and pension funds, and even individual investors find this insightful.
- To find out what hedge funds are buying, it is possible to use 13F filings, hedge fund reports, hedge fund-oriented internet services, and financial conferences and events.
Due to their appeal as a sophisticated investment vehicle, hedge funds are often seen as a blueprint for many aspiring investors. They have advanced approaches to research and use a variety of investment strategies. Factors like these put tracking hedge fund activities on the top priority list for many individual and institutional investors. So, how to find out what hedge funds are buying is crucial if an investor wants to stay in the loop.
When looking for reliable data on hedge fund activities 13F filings are the first and obvious choice. All hedge funds that have an AUM of over $100 million in equity holdings must file quarterly 13Fs with the SEC. Besides the SEC website, there are other sources like WhaleWisdom, and Stock Circle that analyze and compile the data from 13Fs, making tracking a specific fund easier.
The one downside of analyzing 13F is that information from these reports is delayed by 45 days. Besides the 13F several investment-oriented websites offer real-time insights covering bigger transactions from the market. While hedge funds may offer diversification and adaptivity, they should not be the only investment option due to their risks and high fees.
Ways To Track Hedge Fund Activities
Data From Public Filings
All hedge funds that have at least $100 million in assets under management, must file a 13F with the SEC every quarter. Analyzing 13Fs has its upsides and downsides.
The data from 13F filings are accurate and offer a certain level of detail. Those data paint a big picture of the hedge fund's activities every quarter. On the downside, the data became available with a 45-day delay. This results in data not being up to date.
Quarterly filings can be used to analyze and compare data from several hedge funds. By doing so an investor can potentially spot an undervalued security or a new emerging trend.
From the 13F everybody can see the value of a specific holding, but it doesn’t show the number of shares in it. After some calculations, it is possible to get a number, but it demands some time. From this information, you can get a glimpse of trends and what hedge funds prefer investing in.
13Fs are also providing an opportunity to compare data from different time periods. It is enough to use the previous 13Fs and track the changes in holdings, trying to understand the current course of hedge fund strategy.
SEC filings offer insight only into the long equity holdings, while for data on short holdings, it is necessary to find other sources. Sometimes hedge funds report these positions in their reports, but it can be tricky to get to them. These reports are often for the investor's eyes only and are not revealed to the public.
With short positions, these filings do not offer insights on holdings in options or other derivatives. Depending on the fund's strategy these can represent a solid portion of the fund's portfolio.
While 13F filings offer a peek into hedge fund activities, they do not paint the whole picture. Predicting their actions in the future demands solid knowledge about the investment industry. Forecasting future trades can be guessed based on the analysis of the past trades, and market trends.
What is crucial to note is that past performances are not a guarantee of future success.
Internet Services Focused on Hedge Fund Activities
Online services like Stock Circle, and HedgeMind, among others, monitor hedge fund activities. They process data from both large and smaller buys and sells. Depending on the service individuals can take a look at the option holdings of the fund.
Advanced tools can provide basic information about the history performance of the fund when trades took place, and at what prices. With premium accounts, individuals get a lot of first-hand information and complete analysis of the funds. Those data alone can help in an attempt to predict future activities.
Hedge Fund Publications
A number of funds regularly present their data, and even amend the 13F filing with recent hedge fund trades. Due to the fund's transparency and views of data availability, they can offer even detailed information. These reports are often analyzed by professionals and can present a useful source of data.
On the other hand, a majority of hedge funds prefer to keep their operations in the shade, offering little to no data besides the SEC filings.
Industry Events
Hedge funds, along with other investment organizations and companies partake in a wide array of events and conferences. Depending on the topic these events draw different participants, including portfolio managers, CEOs, executives, and analysts.
Events are divided into those available to the public and to those closed off only to the attendees. Specialized websites cover these events and present readers with the latest insights from hedge fund managers and other professionals.
Rarely they will go into detail regarding their portfolios but can provide some insights on the current and future trends. In some cases they will go deep into their strategies, their noted success and failures, providing additional detail into hedge fund activities.
Important Factors To Consider While Analyzing Hedge Funds
Fund Size And Investment Approach
Hedge funds vary in size from micro hedge funds (under $100 million in AUM) to large (over $500 million in AUM. Also, a wide array of strategies that hedge funds use must be put into perspective while analyzing their activities.
Larger hedge funds often do not change positions fast, especially if they are in value investing. These hedge funds are patient and are focused on long term growth. Comparing them to a trend following hedge funds is difficult due to the differences in core principles.
Defining the main characteristics of the fund is essential before anyone attempts to analyze their trading practices and activities. Hedge funds use different methods in portfolio construction, invest in different asset classes, and have different time horizon focuses. All these factors must be taken into account.
Portfolio Concentration and Turnover Rate
Depending on the strategy and AUM size funds can have different portfolio concentration and turnover rates. Some strategies favor highly diversified portfolios, while others opt for a concentrated approach.
A turnover rate of the portfolio can point to a trading strategy. If the turnover rate is high that means that the fund often trades, and changes its holdings. A lower turnover rate points to a fund that looks for earnings in the long term.
Impact of The Market And Benchmarks
Analyzing the fund trades is not enough if you are looking to understand their activities. Hedge fund managers and analysts are crafting trading decisions based on the bigger picture. It includes the state of the market, like it is in a bull or bear environment, as it can have a major influence on trading decisions.
While looking at the fund's performance and sector allocation it is useful to compare it to the reference indexes. Any deviations or similarities can shed light on a funds sector focus and potential alpha generation strategies.
Fundamental Analysis
To gain better insights into hedge funds strategies and approaches it is advisable to analyze the underlying companies from the portfolio. Based on the analysis of companies' financial characteristics, competitive landscape, and overall state of the sector, it is possible to better understand the reasons for specific investment decisions.
Who Benefits From Hedge Fund Analysis
Portfolio Managers
Managers in mutual funds, ETFs, or other similar financial organizations may look at hedge fund investment targets. They can get new investment ideas, check the direction of the market, or compare it with their decisions.
Accredited Investors
Individual investors who construct their portfolios may look up to the professionals from hedge funds. Just like managers from other financial institutions, investors can look for inspiration or a trend in the market.
Traders
Traders specialized in short-term trading may look for potential insights based on the activities of hedge funds. However, their short-term moves are often hidden from the public, so they can be only a limited source of information. Also, due to the fast-paced nature of short-term trading, it is difficult to make much out of any information unless it is current.
Analysts And Journalists
Analysts are financial companies often focused on specific companies or sectors. By analyzing hedge fund moves, they can aim to get a grasp of their investment thesis. From the thesis, they can better understand factors that can impact the companies or sectors they cover.
On the other hand, journalists specialized in financial reporting may track hedge fund activities to get material for new stories. Getting information about a current new trend, or a major trade, before others do, can result in a major reporting breakthrough.
Final Thoughts
Insights into hedge fund activities frequently resulted in finding gems where rarely would look for them. However, investment ideas are not the only reason to track hedge funds on a regular basis. Being able to identify a future trend can get you ahead of the competition, and generate massive returns.
With limited data in the SEC filings, a thorough analyst should also think about other sources. Hedge fund-oriented internet services, fund reports, and financial events all pose sources that can help in identifying hedge fund targets and strategies.
In any case, be ready to dig deep. The effort placed in the analysis is in direct proportion to the quality of data the researcher gets. As a final piece of advice, take past performances with a grain of salt. Any financial institution has good and bad periods. Replicating any fund's performance or strategy could end badly, due to the ever-shifting trend in the market.
