quantwise 1.2.0 → 1.2.2

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+# Institutional Investor Types and Strategies
+
+## Overview
+
+Not all institutional investors are created equal. Understanding the different types of institutions, their investment strategies, time horizons, and motivations is critical for interpreting 13F filing changes. This guide categorizes institutional investors and explains how to weight their buy/sell signals.
+
+## Major Categories of Institutional Investors
+
+### 1. Hedge Funds
+
+**Characteristics:**
+- Active management with concentrated portfolios
+- High turnover (often 100%+ annually)
+- Performance-driven compensation (2% management + 20% performance fees)
+- Flexible investment strategies (long/short, derivatives, leverage)
+
+**Typical Time Horizon:** 3 months to 2 years
+
+**Portfolio Structure:**
+- 20-100 core positions
+- High conviction bets (top 10 positions = 50-70% of portfolio)
+- Willing to take large positions relative to AUM
+
+**Investment Styles:**
+- **Value/Deep Value:** Distressed assets, turnarounds, special situations
+- **Growth:** High-growth companies, disruptive tech
+- **Activist:** Catalyze change through board seats, proxy fights
+- **Event-Driven:** M&A arbitrage, restructurings
+- **Quantitative:** Algorithm-driven, factor-based
+- **Macro:** Top-down, sector rotation, global trends
+
+**Signal Interpretation:**
+
+**Strong Signal (Weight: 3.0x):**
+- **Top-tier hedge funds:** Berkshire Hathaway, Appaloosa, Baupost, Pershing Square, Third Point
+- **Why:** Deep research, long-term oriented, willing to be contrarian
+- **When they buy:** Often early, before institutional herd
+- **When they sell:** May be ahead of trouble
+
+**Moderate Signal (Weight: 2.0x):**
+- **Mid-tier active managers:** Smaller hedge funds with solid track records
+- **Why:** Still research-driven but less patient capital
+
+**Weak Signal (Weight: 1.0x):**
+- **Momentum/quant funds:** Tiger Cubs, momentum-driven strategies
+- **Why:** Often follow trends rather than lead them
+- **Caution:** May be last to buy (top signal) or first to panic sell
+
+**Examples of Notable Hedge Funds:**
+
+| Fund Name | CIK | Strategy | Best Known For | Weighting |
+|-----------|-----|----------|----------------|-----------|
+| Berkshire Hathaway | 0001067983 | Value/Quality | Warren Buffett, long-term compounders | 3.5x |
+| Pershing Square | 0001336528 | Activist/Value | Bill Ackman, catalytic events | 3.0x |
+| Baupost Group | 0001061768 | Deep Value | Seth Klarman, distressed opportunities | 3.0x |
+| Appaloosa Management | 0001079114 | Value | David Tepper, contrarian bets | 3.0x |
+| Third Point | 0001040273 | Event-Driven/Activist | Dan Loeb, catalyst-driven | 2.5x |
+| Tiger Global | 0001167483 | Growth/Tech | Chase Coleman, high-growth tech | 2.0x |
+| Renaissance Technologies | 0001037389 | Quantitative | Jim Simons, algorithmic trading | 1.5x |
+
+### 2. Mutual Funds
+
+**Characteristics:**
+- Active management with diversified portfolios
+- Lower turnover than hedge funds (20-50% annually)
+- Must stay fully invested (typically 95%+ equity allocation)
+- Fee pressure driving shift toward passive strategies
+
+**Typical Time Horizon:** 1-5 years
+
+**Portfolio Structure:**
+- 50-200 holdings
+- More diversified than hedge funds
+- Sector constraints (often cannot exceed index weight by >5%)
+
+**Investment Styles:**
+- **Large-Cap Growth:** Fidelity Contrafund, T. Rowe Price Growth Stock
+- **Large-Cap Value:** Dodge & Cox Stock Fund, American Funds Washington Mutual
+- **Small-Cap Growth:** Baron Small Cap Fund
+- **Dividend/Income:** Vanguard Dividend Growth
+
+**Signal Interpretation:**
+
+**Strong Signal (Weight: 2.5x):**
+- **Quality active mutual funds:** Fidelity, T. Rowe Price, Dodge & Cox
+- **Why:** Rigorous research process, patient capital
+- **When they buy:** Methodical accumulation over multiple quarters
+- **When they sell:** Often early warning of deteriorating fundamentals
+
+**Moderate Signal (Weight: 1.5x):**
+- **Typical mutual funds:** Regional funds, smaller fund families
+- **Why:** Still research-driven but less differentiated
+
+**Weak Signal (Weight: 0.5x):**
+- **Closet indexers:** Funds that mimic index but charge active fees
+- **Why:** Minimal value-add, primarily following index weights
+
+**Examples of Notable Mutual Fund Families:**
+
+| Fund Family | CIK | Strategy | Research Quality | Weighting |
+|-------------|-----|----------|------------------|-----------|
+| Fidelity Management & Research | 0000315066 | Growth & Value | Excellent, large analyst team | 2.5x |
+| T. Rowe Price Associates | 0001113169 | Growth | Excellent, bottom-up research | 2.5x |
+| Dodge & Cox | 0000922614 | Deep Value | Excellent, contrarian | 2.5x |
+| Wellington Management | 0000105132 | Multi-strategy | Very Good | 2.0x |
+| Capital Group (American Funds) | 0001007039 | Multi-manager | Very Good | 2.0x |
+| Baron Capital | 0001047469 | Small/Mid Growth | Good | 2.0x |
+
+### 3. Index Funds and ETFs
+
+**Characteristics:**
+- Passive management tracking indices
+- Extremely low turnover (only when index composition changes)
+- Must hold all index constituents
+- Forced buyers/sellers based on index rules
+
+**Typical Time Horizon:** Indefinite (hold until removed from index)
+
+**Portfolio Structure:**
+- Matches index exactly (S&P 500, Russell 2000, etc.)
+- Hundreds to thousands of holdings
+- No discretionary overweights/underweights
+
+**Investment Styles:**
+- **Broad Market:** SPY (S&P 500), VTI (Total Stock Market)
+- **Sector:** XLK (Technology), XLE (Energy)
+- **Factor:** QQQ (Nasdaq 100), IWM (Russell 2000)
+- **Thematic:** ARK Innovation (actively managed but ETF structure)
+
+**Signal Interpretation:**
+
+**Weak Signal (Weight: 0.3x):**
+- **Large index funds:** Vanguard, State Street, BlackRock index products
+- **Why:** Mechanical buying/selling based on index rules and fund flows
+- **When they buy:** Index inclusion, fund inflows (not fundamental view)
+- **When they sell:** Index deletion, fund redemptions
+
+**Zero Signal (Weight: 0.0x):**
+- **Pure index trackers:** Changes driven entirely by index methodology
+- **Ignore for analysis:** Provides no fundamental insight
+
+**Special Case - ARK ETFs (Weight: 2.0x):**
+- Actively managed despite ETF structure
+- Cathie Wood's high-conviction disruptive innovation bets
+- Treat like active mutual fund, not passive ETF
+
+**Major Index Fund Providers:**
+
+| Provider | CIK | AUM | Passive vs Active | Weighting |
+|----------|-----|-----|-------------------|-----------|
+| Vanguard Group (Index) | 0000102909 | $7T+ | 90% Passive | 0.3x |
+| BlackRock (iShares) | 0001006249 | $3T+ | 80% Passive | 0.3x |
+| State Street (SPDR) | 0001067983 | $1T+ | 90% Passive | 0.3x |
+| ARK Investment Management | 0001579982 | $20B | 100% Active | 2.0x |
+
+### 4. Pension Funds
+
+**Characteristics:**
+- Extremely long-term oriented (liabilities 20-30 years out)
+- Conservative mandates with diversification requirements
+- Large allocations to fixed income, alternatives
+- Equity portion often outsourced to external managers
+
+**Typical Time Horizon:** 10-30 years
+
+**Portfolio Structure:**
+- Thousands of holdings (extremely diversified)
+- Target allocations by asset class (e.g., 60% stocks, 40% bonds)
+- Rebalance mechanically to maintain targets
+
+**Investment Styles:**
+- **Public Pensions:** CalPERS, CalSTRS, New York State Common Retirement Fund
+- **Corporate Pensions:** IBM Retirement Fund, GE Pension Trust
+- **Endowments:** Harvard Management Company, Yale Investments Office
+
+**Signal Interpretation:**
+
+**Weak Signal (Weight: 0.8x):**
+- **Most pension funds:** Slow-moving, diversified, often following consultant recommendations
+- **Why:** Not differentiated investors, lag behind trends
+
+**Moderate Signal (Weight: 2.0x):**
+- **Top university endowments:** Harvard, Yale, Princeton
+- **Why:** Sophisticated investment teams, access to best managers
+- **David Swensen model:** Yale's approach influenced entire industry
+
+**Examples:**
+
+| Fund Name | CIK | Type | Quality | Weighting |
+|-----------|-----|------|---------|-----------|
+| CalPERS | 0001133228 | Public Pension | Average | 0.8x |
+| Harvard Management Company | 0001082621 | University Endowment | Excellent | 2.0x |
+| Yale Investments Office | 0001080232 | University Endowment | Excellent | 2.0x |
+| Teacher Retirement System of Texas | 0001023859 | Public Pension | Average | 0.8x |
+
+### 5. Insurance Companies
+
+**Characteristics:**
+- Conservative, liability-matching strategies
+- Heavy fixed income allocation (regulatory capital requirements)
+- Equity investments typically in blue chips, dividends
+- Low turnover
+
+**Typical Time Horizon:** 5-15 years
+
+**Portfolio Structure:**
+- Hundreds of holdings
+- Focus on large-cap, dividend-paying stocks
+- Avoid high-volatility growth stocks
+
+**Investment Styles:**
+- **Life Insurance:** MetLife, Prudential
+- **Property & Casualty:** Berkshire Hathaway (reinsurance), Markel
+
+**Signal Interpretation:**
+
+**Weak Signal (Weight: 1.0x):**
+- **Most insurance companies:** Conservative, follow rating agency guidance
+- **Why:** Limited risk appetite, prefer safety over returns
+
+**Strong Signal (Weight: 3.0x):**
+- **Insurance-affiliated value investors:** Markel (Tom Gayner), Berkshire (special case)
+- **Why:** Patient capital, value-oriented, long-term compounders
+
+### 6. Banks and Trust Companies
+
+**Characteristics:**
+- Manage money on behalf of clients (wealth management, trusts)
+- Report aggregate positions across all client accounts
+- May include both discretionary and non-discretionary accounts
+
+**Typical Time Horizon:** Varies by client (1-10 years)
+
+**Portfolio Structure:**
+- Thousands of holdings (reflecting diverse client base)
+- Often includes model portfolios applied across clients
+
+**Signal Interpretation:**
+
+**Weak Signal (Weight: 0.5x):**
+- **Most banks:** Reflect client preferences more than bank's views
+- **Why:** Custodial nature, not proprietary investment decisions
+
+**Moderate Signal (Weight: 1.5x):**
+- **Private banks with discretionary mandates:** Goldman Sachs Asset Management, JPMorgan Asset Management
+- **Why:** Some proprietary research, but still client-driven
+
+## Institutional Investor Quality Tiers
+
+### Tier 1: Superinvestors (Weight: 3.0-3.5x)
+
+**Characteristics:**
+- 20+ year track records beating market
+- Patient capital, long-term orientation
+- Concentrated portfolios indicating high conviction
+- Willing to be contrarian
+
+**List:**
+1. Warren Buffett (Berkshire Hathaway)
+2. Seth Klarman (Baupost Group)
+3. David Tepper (Appaloosa Management)
+4. Bill Ackman (Pershing Square)
+5. Dan Loeb (Third Point)
+6. Mohnish Pabrai (Pabrai Investment Funds)
+7. Li Lu (Himalaya Capital)
+8. Tom Gayner (Markel)
+
+**When to Follow:**
+- New positions: Investigate immediately
+- Large increases: High conviction, validate thesis
+- Exits: Warning sign, re-evaluate your holdings
+
+### Tier 2: Quality Active Managers (Weight: 2.0-2.5x)
+
+**Characteristics:**
+- Solid long-term track records
+- Research-driven process
+- Reasonable turnover (20-60%)
+- Institutional-grade due diligence
+
+**List:**
+1. Fidelity Management & Research
+2. T. Rowe Price Associates
+3. Dodge & Cox
+4. Wellington Management
+5. Capital Group (American Funds)
+6. Baron Capital
+7. ARK Investment Management (Cathie Wood)
+8. Greenhaven Associates
+
+**When to Follow:**
+- Multi-quarter trends: Look for 3+ quarters same direction
+- Cluster analysis: Multiple Tier 2 managers buying = strong signal
+- Exits: Early warning system
+
+### Tier 3: Average Institutional Investors (Weight: 1.0-1.5x)
+
+**Characteristics:**
+- Benchmark-aware (avoid large tracking error)
+- Committee-driven decisions (slower, less nimble)
+- Follow industry/sector trends
+- Moderate research quality
+
+**Examples:**
+- Regional mutual fund families
+- Mid-tier hedge funds
+- Most pension funds
+- Insurance company investment departments
+
+**When to Follow:**
+- Useful for confirming broad trends
+- Less useful for individual stock picking
+- Aggregate flow analysis (overall institutional sentiment)
+
+### Tier 4: Passive and Mechanical (Weight: 0.0-0.5x)
+
+**Characteristics:**
+- No fundamental views
+- Index-driven or rules-based
+- High correlation to fund flows
+- Forced buying/selling
+
+**Examples:**
+- Index funds (Vanguard, BlackRock, State Street index products)
+- Quantitative funds with high turnover
+- Momentum-driven strategies
+
+**When to Follow:**
+- Generally ignore for fundamental analysis
+- Useful for understanding technical supply/demand
+- Can create price dislocations (opportunity)
+
+## Strategy-Specific Interpretation
+
+### Value Investors (Berkshire, Baupost, Dodge & Cox)
+
+**Buying Signal:**
+- Often early (stock still falling)
+- Multi-year time horizon
+- Looking for margin of safety
+
+**How to Interpret:**
+- Don't expect immediate price action
+- Validate their thesis with fundamental research
+- Wait for catalyst or technical confirmation
+
+**Selling Signal:**
+- Often late (stock already appreciated)
+- Selling into strength
+- Taking profits after multi-year holds
+
+### Growth Investors (Fidelity Contrafund, Baron, Tiger Global)
+
+**Buying Signal:**
+- Chasing proven growth stories
+- Momentum component (buy on strength)
+- Paying up for quality
+
+**How to Interpret:**
+- Stock may already have moved
+- Validate growth trajectory is sustainable
+- Watch for slowdown in growth rate
+
+**Selling Signal:**
+- Often early at first sign of deceleration
+- Growth disappointment
+- Momentum reversal
+
+### Activist Investors (Pershing Square, Third Point, Elliot Management)
+
+**Buying Signal:**
+- Catalyst-driven (board changes, asset sales, buybacks)
+- Concentrated positions (5-10% stakes)
+- Public campaigns (13D filings, letters)
+
+**How to Interpret:**
+- High potential returns if catalyst realized
+- Higher risk (activists don't always win)
+- Timeframe: 1-3 years for catalyst to play out
+
+**Selling Signal:**
+- Catalyst achieved
+- Taking profits after successful campaign
+- Activist fight lost
+
+### Momentum/Quantitative Funds (Renaissance, AQR)
+
+**Buying Signal:**
+- Trend-following
+- Factor-driven (value, momentum, quality)
+- Short-term oriented
+
+**How to Interpret:**
+- Confirms technical strength
+- May reverse quickly
+- Don't overweight this signal
+
+**Selling Signal:**
+- Momentum breakdown
+- Factor signal reversal
+- Can accelerate declines
+
+## Institutional Clustering Signals
+
+### Strong Bullish: Quality Investor Clustering
+
+**Pattern:**
+- 3+ Tier 1 or Tier 2 investors buying simultaneously
+- Sustained accumulation (2+ quarters)
+- Increasing position sizes (not just maintenance)
+
+**Example:**
+```
+Stock XYZ - Q3 2024 Institutional Activity:
+- Berkshire: New position, 5% of portfolio
+- Dodge & Cox: Increased existing position by 30%
+- Baupost: New position, 3% of portfolio
+- Fidelity Contrafund: Increased position by 15%
+
+Clustering Score: (3.5×5) + (2.5×30) + (3.0×3) + (2.5×15) = 17.5 + 75 + 9 + 37.5 = 139
+Interpretation: Very strong accumulation by quality investors
+```
+
+**Action:** High conviction buy if fundamentals support thesis
+
+### Moderate Bullish: Broad Institutional Accumulation
+
+**Pattern:**
+- Rising institutional ownership across many Tier 2-3 investors
+- Index fund flows also positive
+- Gradual, sustained trend
+
+**Interpretation:** Consensus building, mainstream acceptance
+
+**Action:** Consider buying if not overvalued
+
+### Neutral: Mixed Signals
+
+**Pattern:**
+- Some quality investors buying, others selling
+- Similar number of increasers vs decreasers
+- Net change near zero
+
+**Interpretation:** No clear institutional consensus
+
+**Action:** Look to other factors (fundamentals, technicals)
+
+### Moderate Bearish: Quality Investors Exiting
+
+**Pattern:**
+- 2-3 Tier 1 or Tier 2 investors reducing/closing positions
+- Tier 3 investors still buying (lagging indicators)
+- Early stage of trend
+
+**Interpretation:** Smart money getting out, warning sign
+
+**Action:** Re-evaluate thesis, consider trimming
+
+### Strong Bearish: Widespread Distribution
+
+**Pattern:**
+- 3+ Tier 1/2 investors exiting
+- Sustained distribution (2+ quarters)
+- Only Tier 4 (passive) buyers remaining
+
+**Interpretation:** Serious fundamental concerns
+
+**Action:** Sell or avoid, investigate for hidden risks
+
+## Time Horizon Alignment
+
+### Long-Term Investors (Your time horizon: 3+ years)
+
+**Focus on:**
+- Tier 1 superinvestors (Berkshire, Baupost)
+- Value-oriented mutual funds (Dodge & Cox)
+- University endowments
+
+**Ignore:**
+- Momentum funds
+- Short-term traders
+- Index fund flows
+
+### Medium-Term Investors (Your time horizon: 1-3 years)
+
+**Focus on:**
+- Quality growth mutual funds (Fidelity, T. Rowe Price)
+- Tier 2 hedge funds
+- Activist investors
+
+**Monitor:**
+- Tier 1 superinvestors (for major themes)
+- Aggregate institutional flow
+
+### Short-Term Traders (Your time horizon: <1 year)
+
+**Focus on:**
+- Recent quarter changes (not multi-year trends)
+- Momentum funds
+- Aggregate institutional flow (technical signal)
+
+**Note:** 13F data less useful for short-term trading due to 45-day lag
+
+## Practical Application: Institutional Investor Scorecard
+
+**For Each Stock, Calculate:**
+
+```
+Institutional Quality Score =
+  (Tier 1 Holders × 3.5) +
+  (Tier 2 Holders × 2.5) +
+  (Tier 3 Holders × 1.0) +
+  (Tier 4 Holders × 0.3)
+
+Institutional Flow Score =
+  (Tier 1 Buyers × 3.5) - (Tier 1 Sellers × 3.5) +
+  (Tier 2 Buyers × 2.5) - (Tier 2 Sellers × 2.5) +
+  (Tier 3 Buyers × 1.0) - (Tier 3 Sellers × 1.0)
+
+Combined Score = Institutional Quality Score + Institutional Flow Score
+
+Score > 50: Strong institutional support
+Score 25-50: Moderate institutional support
+Score 0-25: Weak institutional support
+Score < 0: Institutional distribution underway
+```
+
+**Example Calculation:**
+
+```
+Stock ABC Analysis:
+
+Tier 1 Holders: 2 (Berkshire, Baupost)
+Tier 2 Holders: 5 (Fidelity, T. Rowe Price, Dodge & Cox, Wellington, Baron)
+Tier 3 Holders: 20
+Tier 4 Holders: 50 (mostly index funds)
+
+Quality Score = (2 × 3.5) + (5 × 2.5) + (20 × 1.0) + (50 × 0.3)
+             = 7 + 12.5 + 20 + 15 = 54.5
+
+Recent Changes (Q3 2024):
+Tier 1 Buyers: 1 (Baupost increased 20%)
+Tier 2 Buyers: 3 (Fidelity +10%, Baron +15%, new buyer +5%)
+Tier 1 Sellers: 0
+Tier 2 Sellers: 1 (T. Rowe Price -5%)
+
+Flow Score = (1 × 3.5) - 0 + (3 × 2.5) - (1 × 2.5)
+          = 3.5 + 7.5 - 2.5 = 8.5
+
+Combined Score = 54.5 + 8.5 = 63
+
+Interpretation: Strong institutional support with ongoing accumulation
+Action: High conviction buy if fundamentals align
+```
+
+## Summary: Institutional Investor Weighting Guide
+
+**High Weight (3.0-3.5x):**
+- Berkshire Hathaway, Baupost, Pershing Square, Third Point
+- Value-oriented with long track records
+- Contrarian, patient capital
+
+**Moderate Weight (2.0-2.5x):**
+- Fidelity, T. Rowe Price, Dodge & Cox, Wellington, ARK
+- Quality active managers
+- Research-driven
+
+**Low Weight (1.0-1.5x):**
+- Average mutual funds, most pension funds
+- Committee-driven, benchmark-aware
+
+**Minimal/Zero Weight (0.0-0.5x):**
+- Index funds, momentum funds
+- Mechanical, no fundamental views
+
+**When in Doubt:**
+- Weight quality over quantity
+- Multi-quarter trends over single quarter
+- Active over passive
+- Concentrated portfolios over diversified