How We Calculate Performance

Published June 25th, 2020

We calculate performance based on 13F filings.  13F filings only apply to institutional investment managers with investment discretion over more than $100 million.

13F filings do not require investment managers to disclose all of their investments.  13F filings disclose the following, according to the SEC (see ‘Question 7’ in the linked article):

“The Official List of Section 13(f) Securities primarily includes U.S. exchange-traded stocks (e.g., NYSE, AMEX, NASDAQ), shares of closed-end investment companies, and shares of exchange-traded funds (ETFs). Certain convertible debt securities, equity options, and warrants are on the Official List and may be reported. But see Section 13(f)(4) (referring to equity securities of a class referred to in Exchange Act section 13(d)(1)) and exemptive rules 12a-4 and 12a-9 under the Exchange Act.”

You can see a full list of 13F securities on this page.  The options and warrant disclosures don’t provide enough information to be fully useful.  Specifically, duration of these contracts is not included.

As a result, we exclude non-equity securities from our performance data.  We also exclude ETFs and focus specifically on individual stocks.

Our goal is to see the stock picking performance of different investment managers using 13Fs.

13F filings only show holdings at the end of the filing period.  Intra-period activity is not disclosed.

Further, 13F filings are delayed around 45 to 50 days.  As an example, filings for the quarter ended March 31st come out around mid May.

Buying and selling done in a 13F may be for rebalancing purposes.  Quarter over quarter changes in share counts in 13F filings could be due to the investment manger rebalancing his/her portfolio following cash inflows or outflows to the investment management company.

To summarize, the 13F form has several quirks that impact how we calculate performance:

  1. Not all securities are disclosed
  2. Intra-period activity is not disclosed
  3. Reports are delayed
  4. Share count changes may be due to rebalancing and not a conviction change

Moreover, the data we are using eliminates securities that have been acquired, delisted, or gone bankrupt so there is some bias in the historical results.  We believe this to be relatively minor over our three year performance look back window for calculating performance.  Our performance numbers should be used as a general guide rather than absolute perfect recreations of performance.

Also, our data provider IEX does not have every security in the data package that we have, so some securities may be excluded in performance calculations due to this.

With the above in mind, here’s how we calculate performance for a given 13F filing:

  1. Start with stocks listed on major U.S. exchanges
  2. Calculate total return for each stock using (1) the first trading day after the report ‘accepted date’ and (2) the trading day that is either on or just before the ‘accepted date’ of the next 13F filing
  3. Returns are weighted using share count from the 13F filing and the share price from the first trading day after the report ‘accepted date’

The above method gives us return data for a given 13F report if an individual investor would have invested along with the 13F filing.  Note that this is significantly different from actual underlying investment manager performance.

The goal of the above process is to determine which investment manager 13F filings are best to use for individual stock selection ideas.

A series of the same investment managers’ 13F filing performance (calculated using the above method) can be used to calculate longer-term performance.

Using 13F filings to match what an investment manager does is impossible.  But these filings can be used to generate compelling investment ideas from some of the best investment managers there are.  Studying the historical performance of 13 Filings as they could’ve been invested in by individual investors gives an idea of which investment manager’s 13F filings to follow moving forward.