Ignore the “Sell in May and Walk Away” fear-mongering myth. The fifth month of the year provides investors with abundant information on two fronts: the Russell Reconstitution and quarterly 13-F filings from top investors like Warren Buffett, Michael Burry, and Bill Ackman. These updates can help investors fortify their portfolios and navigate potential challenges ahead.
2 Major Events in May
On the first front is the Russell Reconstitution. This just kicked off as of the close of business on April 30 (Ranking Day). Russell pretty much uses the closing market values of the individual stocks the night before May 1, 2024, to rank what will and won’t soon be added or removed from Russell indices. This “preliminary list” will be provided on May 24. It provides investors with a defined list of stocks that may soon see their demand spike or fall from professionals that are required to manage a Russell index.
Another information front occurs in mid-May, where investors eagerly await the quarterly 13-F filings from top names like Warren Buffett, Michael Burry, and Bill Ackerman, among others. These filings, mandated by the SEC, reveal public trades made by large investors within 45 days of each quarter’s end.
Insights into the Russell Reconstitution
The Russell reconstitution offers an unusually rich opportunity for active investors. There is over $15.9 trillion in assets that are currently benchmarked to a Russell index, with approximately $12 trillion specifically benchmarked to the Russell U.S. Equity indices. Many large fund managers are required to maintain fidelity to their benchmark targets. This means buying or selling stocks on or near the reconstitution date, whether they want to or not.
The trading volume of companies joining an index usually spikes near the end of June, especially on the last Friday, as index fund managers rush to align their holdings with the benchmark’s weighting before the following Monday’s opening bell. Consider the impact this surge has on price fluctuations.
How Investors Play the Russell Reconstitution
For active investors, the annual Russell Reconstitution presents a unique chance to capitalize on the potential volatility surrounding stocks. They spend time identifying companies likely to move up to a large-cap index, down to a smaller one, or exit an index altogether. Any of these moves can yield profitable long or short positions.
The stage first began to be set at the close of April trading. FTSE Russell, a subsidiary of the London Stock Exchange (LSEG), will escalate communication throughout the month of May, to the last Friday of June.
The more recognized ETFs tracking the impacted FTSE Russell indices include the iShares Russell 1000 ETF (NYSE: IWB), the iShares Russell 2000 ETF (NYSE: IWM), and the Russell 3000 ETF (NYSE: IWV).
SEC 13-F Filings: Essential Insights for Investors
SEC 13F filings are quarterly reports submitted to the SEC by institutional investment managers with at least $100 million in assets under management. The report specifically lists publicly traded stocks and bonds. Fund companies can report holdings anytime within the 45-day limit, like May 15, but they often opt to keep their holdings undisclosed until the final day.
There will be a lot of headlines generated around this time. Investors who are a little ahead of the pack with the information could have profitable ideas to help propel their portfolios.
How Investors Play the 13-F Filings
13F filings are used differently by each investor. The reports from investors of various styles, including an expected first-time report by Nvidia (NASDAQ: NVDA), offer a glimpse into the investment strategies of major institutional investors like hedge funds, mutual funds, and pension funds.
Investors can use this data to uncover hidden opportunities that others with greater research resources might have overlooked. These 13-Fs help investors gain valuable insights.
Key Takeaway
May is a month that is always fertile with new investment ideas and information. Whether it’s the beginning of the Russell Reconstitution, known to change the fortunes of some stocks, or a peek behind the curtain into the 13-F filings of major fund managers, every piece of information is crucial for investing in this competitive activity.
