How can institutional holdings be greater than 100%?


Many investors choose to research the percentage of a company’s shares held by institutional investors as a way to measure where the largest investors are investing their money. These institutions can include mutual funds, pension funds, large banks, and other large financial institutions. They represent the largest source of supply and demand in the market, and are the first to participate in the primary market. Institutional investors are also responsible for the majority of secondary market operations. Therefore, they have a great influence on stock prices.

If you see that investors own more than 100% of the shares in a company, you should assume there is a problem with the data.

Sometimes you may come across a case where an investor appears to have shares in a company that far exceed those that actually exist. Obviously, it is technically impossible for any shareholder or category of shareholder, institutional or individual, to own more than 100% of the outstanding shares of a company. Therefore, when you view investment information websites that report institutional holdings that exceed 100%, you can probably assume that there is something wrong with the data. There are two likely sources responsible for these notification errors.

Key takeaways

  • Institutional investors have great influence in the market and the way they trade can affect the way stock prices move.
  • There are cases where investors appear to have shares in a company that far exceed those that actually exist.
  • If you see investors who have more than 100% in a company, it may be due to a delay in updates.
  • Another reason for exceeding the 100% stake mark may be due to short selling among investors.

Slow updates

The first and generally most obvious reason for why an institutional investor owns more than 100% of a company’s shares is due to delays in updating publicly available data. The figures published in an institution’s report correspond to the date of an institutional holding company. These dates generally differ somewhat between all institutions that own shares in a company, resulting in differences that could affect the percentage reported for the total institutional holdings shown.

The numbers presented are updated monthly with a delay of approximately four weeks. As a result, even a slight delay in reporting dates between one or more institutions could upset the count, making it appear that a shareholder or investor owns more than 100% of a company’s outstanding shares.

Short sale

Along with delays in reporting on ownership among institutional investors, another situation can arise that can cause a sudden increase in institutional ownership of stocks: short selling. Remember, short selling is when an investor borrows shares in a company and immediately sells them to another investor. In many cases, some investors plan to buy back the shares for less money.

This is an example of one of the most likely causes of distorted institutional participation rates. Suppose Company XYZ has 20 million shares outstanding and Institution A owns all 20 million. In a shorting transaction, Institution B borrows five million of these shares from Institution A and then sells them to Institution C. If both A and C claim ownership of the shorted shares by B, institutional ownership of the Company XYZ could be reported as 25 million. shares (20 + 5) —or 125% (25 ÷ 20). In this case, institutional holdings may be incorrectly reported as more than 100%.

In cases where the reported institutional ownership exceeds 100%, the actual institutional ownership should already be very high. While somewhat imprecise, reaching this conclusion helps investors determine the degree of potential impact that institutional buying and selling could have on a company’s overall stock.

The bottom line

Institutional ownership and sponsorship of the shares of a particular company, often driven by factors other than fundamentals, are not always good indicators of the quality of the shares. Investors who take a fundamental approach should take the time to understand the connection between the fundamentals of a company and the interest the company attracts from large institutional investors.

www.investopedia.com

READ ALSO:  What is the difference between a Sharpe relationship and a Treynor relationship?
About the author

Mark Holland

Leave a comment: