We recently broke the S&P 500 into deciles (50 stocks in each decile) based on a stock's institutional ownership. When then calculated the average year to date performance of each decile. As shown in the chart below, the decile of stocks with the highest institutional ownership is by far down the most. The two deciles of stocks with the least amount of institutional ownership are holding up the best year to date. Clearly, institutions are unwinding positions. This is probably due to a combination of increased bearishness, investor redemptions, and a decrease in the amount of leverage allowed.
This analysis seems flawed to me.
The fact that there are more institutions in this decile suggests that the "smart money" is buying stocks at a bargain price with the expectation that there will be greater gains when it bounces back.
It seems to me that the
analysis should be between the percentage owned by institutions 6 months ago (before October peak) and owned now to find which deciles they have left in greater numbers.
Posted by: carley | January 11, 2008 at 12:45 AM
Carley,
Thanks for your comments. The institutional holdings data is from the most recent quarter and not in real time. The stocks with the highest institutional ownership were already held by the institutions prior to the declines over the past few months. If anything, the large declines indicate excess selling of their holdings and not excess buying.
Posted by: Justin | January 11, 2008 at 08:33 AM
houston has a problem, institutions have positions in excess of the legal authorized outstanding. Yep, which means the trade is once again mininting inventory it can not deliver.
problem, yes indeed de.
Posted by: bobalu | January 13, 2008 at 10:59 PM