For further information: Carolyn Kay Brancato
(212) 339-0413
The Conference Board
For Immediate Release
Release #4548A
INSTITUTIONAL INVESTOR STAKES IN LARGEST 1,000 CORPORATIONS HAVE PEAKED, SIGNALLING THE RISE OF THE INDIVIDUAL INVESTOR
Institutional investor equity in the largest 1,000 U.S. corporations has peaked and individual investor ownership is increasing, The Conference Board reports today in its Institutional Investment Report, widely regarded as the definitive source of information on U.S. institutional investor ownership and control.
Institutions have substantially increased their holdings of the largest 1,000 U.S. corporations -- from 46.6% of total stock in 1987 to an average of 59.9% by year-end 1997. But for the first time since 1987, the upward trend of average institutional holdings for the Top 1000 turned downward to 57.6 percent at the end of the third quarter of 1999.
Institutions generally tend to invest more in large capitalization stocks, which means that their ownership is higher for the largest 1,000 companies than it is for the overall market for all public corporations. Individuals are estimated to control 42.4% of the equity of the largest 1,000 corporations (the residual from the institutional ownership of 57.6%), but, for the equity market as a whole, Conference Board data in the first report of this series (Vol. 3, No. 1) show that individuals own slightly more than half the stock of all public corporations. Individuals, therefore, make a substantial contribution to the liquidity and, for some segments of the individual shareholder base, to the stability of the U.S. equity market.
"Online trading, direct stockholding, employee stock ownership, and the general proliferation in information availability and individual awareness are all contributing to the increasing importance of the individual shareholder," says Dr. Carolyn Kay Brancato, Director of The Conference Board's Global Corporate Governance Research Center. "Historically, companies have focused their investor relations efforts on institutional investors, money managers, and sell-side analysts working for big brokerage houses. But the growing significance of the individual investor has induced some leading U.S. corporations to explicitly devise approaches to attract the long-term and stable individual shareholder."
The Conference Board has begun a working group of senior executives responsible for planning investor strategies to examine the evolving relationship of corporations and their individual investors.
Despite the rise of the individual investor as a commanding force in the marketplace, by the end of the third quarter of 1999, institutional equity ownership still registered an increase in the largest 25 and 50 groups of corporations.
TURNOVER HAS REACHED PEAK LEVELS
New York Stock Exchange (NYSE) turnover in 1998 climbed to 76%--the highest turnover rate ever, beating the 1997 record level of 69%. The number of block trades, most of which are done by institutional
investors, increased during the last year as well. Institutional investors experienced average annual turnover of 44.3% in 1998, up from 42.5% in 1997.
Turnover by money managers in 1998 jumped to a high of 59.7%, up from a previous five year average of approximately 56%. Money managers continued to have the highest average turnover of all institutions, while public pensions managing their own funds continued to have the lowest average turnover, at 23.8%.
Institutions invest according to a variety of strategies, such as "aggressive growth," "growth," "balanced portfolio," and "indexed only." Turnover in 1998 is most vigorous for the "aggressive growth" strategy.
"Growth" strategies continued to be popular in 1998 and accounted for the largest block of equity, 25.3%, while income strategies accounted for only 2.5%.
INSTITUTIONAL OWNERSHIP FOR THE LARGEST 25 U.S. CORPORATIONS SHOWS MONEY MANAGERS GAINING CONTROL
A detailed breakdown of ownership patterns shows that, at the end of the third quarter of 1999, the largest 25 companies had total institutional investor holdings of 51.7%, up from 48.7% in 1997. This reaffirms the institutional tendency to invest in large capitalization companies. This number increased despite the greater presence of some utilities and, more recently, of high-tech corporations that tend to have relatively low institutional holdings. Microsoft, Lucent, AT&T, AOL, Dell, and Bell Atlantic each have institutional holdings under 50%. As has been the case since 1996, money managers continue to have investment control over the largest block of stock in these largest 25 companies (21.1% at the end of the 3rd quarter of 1999), followed by banks and bank custodians (11.3%).
More of the total equity market is being managed by the largest 25 institutions. The largest 25 institutional investors controlled 22.7% of total outstanding equities in 1998, up from 19.7% in 1997 and 15.4% in 1995. These largest 25 also managed 47.9% of the total amount of equities under management by all types of institutional investors in 1998, up from 40.9% in 1997 and 34% in 1995.
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Source: Institutional Investment Report--Turnover, Investment Strategies, and Ownership Patterns
Volume 3, Number 2
The Conference Board
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