Institutional Investment – Finding the Right Balance

End of week thoughts on a variety of issues impacting investor relations, the markets and the investment community, from Chris Taylor, EVP, Global Research, Thought Leadership & Partnerships

Investor relations officers spend a significant amount of their time (and management’s) interacting with institutional investors. The time and attention given to institutional investors by IROs and management is warranted, whether given to current shareholders or potential shareholders that can take a sizable investment in the company. The effort to satisfy the current needs of shareholders and the courting of new shareholders, however, is often a journey without a destination in mind. The outreach you conducted this quarter, will take place next quarter and the quarter after that and so on.MarketingSiteBanners__FridayOnMind

My colleague Chris Stroh, a senior member of Ipreo’s Corporate Analytics team, cut through a lot of ownership data to highlight some key benchmarks that every IRO should consider when setting program goals and planning an outreach strategy. While we have used the S&P 500, 400 and 600 as proxies for large, mid and small caps, IROs should closely review the ownership of their most relevant sector or market cap peers when setting goals. 

Total Institutional Investment – The Big #
We start with the broadest measurement, institutional investment as a percentage of shares outstanding. As you can see in the chart below, the bar is set very high. The average ownership of companies in all three indices is above 80% of shares outstanding. The average ownership in the mid-cap index is higher than the average of the S&P 500 and there is just a small drop off moving to small caps.

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Active v Passive Split
The flow of assets into passively-managed index funds, particularly those tracking the S&P 500, has been well documented by Ipreo and others. The chart below, however, illustrates that indexers and other passive investors (e.g., Quants) have similar representation as a percentage of institutional investment across large, mid and small caps.

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Shareholder Concentration
Consolidation in the investment management space and the aforementioned rise of indexing has driven equity assets into the hands of fewer investment firms. The chart below tracks the percentage of institutional investment in each market-cap range by the number of holders. Large-cap stocks, which have a deeper bench of shareholders, measure lowest on the concentration scale in every shareholder count category. Nevertheless, across all market caps the top 25 institutional investors represent at least 50% of the total institutional investment in the average stock.

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Shareholder Tenure
Most IROs prioritize long-term investors over high-turnover hedge funds or other event-driven investors. The chart below depicts the average turnover of the actively-managed investors in the 500, 600 and 400. The shareholder bases of large caps have the most stable profile, followed by mid caps and then small caps. 

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Getting Attention Overseas
Investment from Europe, Asia and elsewhere outside North America is more prevalent in larger cap companies and becomes increasingly difficult to attract moving down the market-cap ladder. S&P 400 (mid) have about half the non-North American ownership of the S&P 500 and S&P 600 (small) have about one-third (read more about the growth in foreign investment into the S&P 500 in a recent BetterIR article).

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On the journey to retain and attract institutional investment, it’s important for IROs to periodically stop at a weigh station to assess and measure outreach efforts against the changes in their shareholder bases. Putting your company’s ownership profile in context by reviewing the profiles of similar-sized companies and sector peers will enable you to develop effective mile markers, if not a destination.

Please contact your Ipreo analyst or drop us an email at corporateanalytics@ipreo.com, and we will help you plot a course by analyzing your company’s ownership profile against the index averages and a more specific peer set.