Large institutional investors, such as mutual funds, pension funds, insurance companies, hedge funds, endowments and other investment firms, are often considered to be the “smart money” on Wall Street. Unlike the average retail investor, many of these professionals have industry connections, top-tier resources and huge teams of professionals to perform analysis and develop strategies.
While institutions are far from perfect in picking stocks, traders and investors often see a stock’s institutional ownership as a vote of confidence from Wall Street. When a new institution takes a large stake in a company, it can serve as a major bullish catalyst. At the same time, a stock with relatively low institutional ownership may be a red flag.
Why Is It Important?
Typically, institutional investors don’t tend to trade their positions in the short-term given their large size and the costs and difficulties in finding buyers and sellers. In addition, all institutional investors are not created equal. Some fund managers have reputations as being momentum investors, whereas others are known for value or contrarian investing strategies.
Typically, institutional ownership is considered a good thing, but retail investors should understand what they are getting into when they buy a stock with high institutional ownership. Institutions often own millions or billions of dollars worth of stock, so even a single institutional investor can flood the market with shares and drive down the stock price if it exits a large enough position.
In addition, large institutional investors can exert pressure on a company’s management them given the voting power their shares hold. Sometimes this influence can be bullish, and other times it can hold a company back and create an unwanted distraction.
Stocks Institutions Are Buying
Here are the 10 stocks in the S&P 500 that have experienced the most institutional buying, according to Finviz. Stocks are sorted by the percent change in total institutional ownership.
- Fiserv Inc (NASDAQ: FISV), +28.1% ownership.
- Fidelity National Information Servcs Inc (NYSE: FIS), +14.2% ownership.
- NetApp Inc. (NASDAQ: NTAP), +12.8% ownership.
- Global Payments Inc (NYSE: GPN), +11.7% ownership.
- Macerich Co (NYSE: MAC), +7.1% ownership.
- L3Harris Technologies Inc (NYSE: LHX), +6.5% ownership.
- Macy's Inc (NYSE: M), +5.4% ownership.
- LKQ Corporation (NASDAQ: LKQ), +5.2% ownership.
- Expedia Group Inc (NASDAQ: EXPE), +5.0% ownership.
- Cadence Design Systems Inc (NASDAQ: CDNS), +4.6% ownership.
It’s always good to see institutions betting on a stock in your portfolio, but it is especially telling to see institutions buying the dip in underperforming stocks like Macerich and Macy’s. If company insiders and institutions see a sell-off as an investing opportunity, investors can rest assured that the bull thesis for a stock is alive and well.
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