What Is Institutional Ownership?
Institutional ownership is the amount of a company’s available stock owned by mutual or pension funds, insurance companies, investment firms, private foundations, endowments or other large entities that manage funds on behalf of others.
Understanding Institutional Ownership
Stocks with a large amount of institutional ownership are often looked upon favorably. Large entities frequently employ a team of analysts to perform detailed and expensive financial research before the group purchases a large block of a company’s stock. This makes their decisions influential in the eyes of other potential investors.
Key Takeaways
- Institutional ownership is the amount of stock owned by large entities that manage funds on behalf of others.
- Reputations of institutional ownerships can influence interest in a stock.
How Institutional Ownership Can Influencethe Value of Securities
Because of the investment made in research, institutions are not quick to sell their positions. When they do, however, it can be seen as a judgment on the stock's value and drive down its price.
Given the way institutions tend to approach stock ownership, by taking the time to accumulate the number of shares desired for its position, they might also react collectively to significant news. Not only will the trading activity be followed by retail investors, but other institutional investors might also retreat from a stock en masse if significant issues are discovered. Such a move could trigger a sell-off as the lack of institutional investor confidence weakens the security’s value.
Institutions may also work to drive the share price higher once they own the stock. TV appearances, articles in high-profile publications, and presentations at investor conferences help to move the stock higher, increasing the value of the position.
The reputation of institutional owners can also influence whether analysts and fund managers at other institutions are interested in buying that stock. For example, if a firm is well-known as a momentum investor, some fund managers may shy away from buying stock heavily owned by that institution. However, if a firm has a reputation for choosing stocks that perform well over the long term, fund managers may be more likely to buy stock that is heavily invested in by that firm.
Issues With Institutional Ownership
When institutions represent the majority of ownership in a given security, there can be a number of issues that arise. With the resources available to institutions, it could be possible for nearly all outstanding shares of a security to be acquired and controlled by these entities, including borrowed shares that short sellers were using to bet against the stock. Such a concentration of ownership may lead to peak ownership where there is little room for new retail investors or any significant trading activity.
Furthermore, peak ownership can mean there will be no further significant investments by institutions into the security, which may lead to diminished upside potential for the stock. There may be discussions of the security’s worth based on the operations of the associated company. With a significant portion of shares locked up in institutional ownership, theremay be little opportunity for further investment.
FAQs
Institutional ownership is the amount of a company's available stock owned by mutual or pension funds, insurance companies, investment firms, private foundations, endowments or other large entities that manage funds on behalf of others.
What is an example of an institutional owner? ›
It is usually a company or firm, such as a mutual fund company, hedge fund, pension fund, or insurance company. Investors that fall in this category tend to buy and sell very large blocks of securities. Any moves they make can influence stock prices and the market as a whole.
Is institutional ownership a good thing? ›
It Matters Which Funds Are Buying Stocks
Increasing demand — as shown by higher volume while a stock's price is rising — pushes up its value even more. In addition, a benefit of strong institutional ownership is liquidity. This allows you to easily sell shares when you decide to get out, even in a weak market.
How is institutional ownership over 100? ›
There are instances where investors appear to hold shares in a company that far exceeds what actually exists. If you see investors holding more than 100% in a company, it may be due to a delay in updates. Another reason for exceeding the 100% holding mark may stem from short selling between investors.
What is institutional ownership in real estate? ›
Institutional Real Estate Definition
According to IREI, institutional grade property: "Includes various types of real estate properties generally owned or financed by institutional investors. Core investments typically include office, retail, industrial and apartments.
What are the different types of institutional ownership? ›
Institutional ownership is the amount of a company's available stock owned by mutual or pension funds, insurance companies, investment firms, private foundations, endowments or other large entities that manage funds on behalf of others.
What is the role of institutional ownership? ›
The role of institutional ownership in economy is a debatable subject. As one of the owners of companies, institutional shareholders have certain rights, including the right to elect the board of directors. The board has the responsibility to monitor corporate managers and their performance.
Can a stock have too much institutional ownership? ›
While high institutional ownership in stock can bring many advantages, there are also potential disadvantages to consider: Volatility Amplification: Institutional investors, particularly hedge funds and mutual funds, may engage in large-scale buying or selling, which can amplify stock price volatility.
What is common institutional ownership? ›
Common institutional ownership refers to the ownership status of a company that is jointly held by common institutional investors who participate in decision making. The practice has emerged as a significant form of shareholding in the capital market.
What stock has the highest institutional ownership? ›
Institutional investor top holdings
| Stock | Aggregate value |
|---|
| MSFT Microsoft Corporation | $1,988,158,221 mm |
| AAPL Apple Inc | $1,449,794,746 mm |
| NVDA NVIDIA Corp | $1,278,846,759 mm |
| GOOG Alphabet Inc - Ordinary Shares | $1,127,172,427 mm |
6 more rowsAfter the data are merged, we calculate institutional ownership in percentage terms (INST) by dividing institutional holdings by the total common shares outstanding. If a ratio is outside of the range of 0-1, the observation is treated as an outlier and is deleted.
Who are the three largest institutional investors? ›
Managers ranked by total worldwide institutional assets under management
| # | Name | 2021 |
|---|
| 1 | Vanguard Group | $5,407,000 |
| 2 | BlackRock | $5,694,077 |
| 3 | State Street Global | $2,905,408 |
| 4 | Fidelity Investments | $2,032,626 |
6 more rowsAs of August 2022, single-family rental properties within institutional portfolios accounted for 3 percent of investor-owned homes nationwide. Institutional investor portfolios remained relatively small by market share as of August 2022, but several notable exceptions exist.
Is institutional ownership good? ›
If the majority of those investors have a good track record and reputation, it is a good thing. But remember, a very high percentage of institutional holdings can be a double-edged sword. When institutional investors hold a sizeable chunk of a company's shares, the stock is said to be 'over-owned' in market parlance.
How to check institutional ownership? ›
10 Again, you can search for and retrieve Form 13F filings using the SEC's EDGAR database. Yahoo Finance also provides a very useful site that details stock ownership. Get a quote of a particular company, and then click the section labeled "Holders" to receive details on the company's institutional holders.
What percentage of real estate investors are institutional? ›
Figure 7 shows this trend, with California (34%), Washington, D.C. (33%), Georgia (32%), New Mexico (31%), Texas (31%), Nevada (30%), Utah (29%), Arizona (29%) and Kansas (29%) posting the highest investor share.
What is an example of an institutional company? ›
Institutional investors include the following organizations: credit unions, banks, large funds such as a mutual or hedge fund, venture capital funds, insurance companies, and pension funds.
What is an institutional investor example? ›
Institutional investors can be pension funds, mutual funds, money managers, banks, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, private equity investors, and more.
Who are the largest institutional asset owners? ›
The Government Pension Investment Fund of Japan remains the largest asset owner in the world, with an AUM of US$1.4 trillion alone.
