Understanding Institutional Investment Strategies

TradingKey - In the previous section, we introduced the basic concept of Form 13F.

Investors can access 13F filings to learn about the holdings and quarterly changes of top Wall Street institutions, potentially gaining investment insights and learning from the strategies of elite investors.

However, hundreds — sometimes thousands — of institutions submit 13F reports to the SEC each quarter. Which of these truly deserve our attention?

First, it's important to understand the investment strategies behind these institutions.

Different investment strategies shape how funds buy and sell stocks and how they construct their portfolios.

The chart above lists the top 20 hedge funds by assets under management, including well-known names such as Bridgewater Associates, founded by Ray Dalio, and Renaissance Technologies, established by James Simons.

But should we simply follow their trades?

Clearly not. Hedge funds vary widely in strategy, and these differences significantly affect how their portfolios behave.

Here are some common hedge fund strategy types:

• Long/Short Equity : Buying stocks expected to rise while shorting those expected to fall, often maintaining a net long or net short exposure.
• Market Neutral : Seeking to profit from pricing discrepancies by going long undervalued stocks and short overvalued ones, with the goal of minimizing market exposure.
• Event Driven : Investing around specific corporate events such as mergers, acquisitions, or bankruptcies to capture price movements.
• Global Macro : Making bets on global interest rates, currencies, commodities, and equities based on macroeconomic trends.
• Quantitative Strategy : Using mathematical models and algorithms to guide trading decisions.

Only by understanding an institution’s underlying strategy can one effectively interpret its 13F filing.

Because different strategies lead to very different holding behaviors, not every 13F report offers meaningful value.

Do you remember the two main limitations of 13F filings mentioned earlier?

1. Incomplete Information : 13F only discloses long positions — such as long stock holdings or long call/put options — but does not include short positions, making it impossible to see the full picture of an institution’s portfolio.
2. Reporting Lag : The deadline for submitting 13F is 45 days after the end of each quarter. Many funds wait until the last minute to file, reducing the timeliness and relevance of the data.

These issues mean that some 13F filings are not just limited in usefulness — they may even mislead investors.

For example, Renaissance Technologies is known for its high-frequency quantitative strategy. Its turnover rate is far higher than that of long-term value-oriented funds. Therefore, by the time you review its 13F filing, the fund may have already completely rotated its positions, rendering the disclosed holdings outdated and irrelevant.

So, is there a way to identify truly valuable 13F reports?

To find actionable 13F filings, focus on institutions with the following three characteristics:

• Unilateral Long-Only Strategy : These funds generate returns almost entirely through long positions. Even without short exposure information, their long holdings remain analytically useful.
• Long-Term Horizon : Funds that hold stocks for extended periods — typically five to ten years or more — tend to have low turnover, which helps offset the lag issue in 13F data.
• Stable Historical Performance : Prioritize funds that have delivered consistent returns across multiple market cycles, indicating that their strategies have worked historically and merit deeper study.

Which institutions meet these criteria? Berkshire Hathaway, led by Warren Buffett, is a classic example.

As a model of value investing, Buffett’s philosophy is to find great companies at attractive valuations and hold them for the long term. Therefore, his firm perfectly fits the "long-only" and "long-term" profile.

Looking at historical performance, Berkshire Hathaway delivered a cumulative return of 309% (about 9.85% annualized) between 2007 and 2021, outperforming the S&P 500 index’s 236% (8.41% annualized). This demonstrates that Buffett’s long-term approach has indeed withstood the test of time.

If you're an investor who favors value investing and prioritizes long-term holding, then Buffett’s portfolio structure is definitely worth studying.

Of course, one point must be emphasized: even the most successful fund managers make mistakes. Therefore, don’t blindly copy their portfolios. Instead, conduct in-depth analysis of the fundamentals of the stocks they own, and combine that with your own judgment before deciding whether to follow suit.

Summary

Before analyzing a 13F report, always start by understanding the institution’s underlying investment strategy.

Focus your research on institutions that exhibit the following traits: unilateral long-only positioning, a long-term investment horizon, and strong historical performance.

Now that we know how to filter valuable investment reports, what should we do next?

In the next section, we will explore how to analyze them in detail.