Shift in equity asset allocation following recent market turmoil

Following our recent piece that highlighted that stocks with low institutional ownership outperformed the falling markets, we have used securities lending flow to identify the names which have seen major increases and decreases in institutional holdings in the last 2 weeks in the U.S. and Europe.

 

On an aggregate level, institutional ownership (as measured by the shares being made available in lending programs) has increased by 2% in the U.S. (Russell 3000) while the market index declined 10% in the two weeks up to 12 August.  In contrast, institutional ownership across the European Stoxx 600 has declined by 0.5% over the same period, against a decline in the index of 11%.

 

The tables below show the greatest percentage changes in institutional investor holdings based on a screen for large cap shares (>1 Billion USD) with a decent institutional ownership base (15% of shares). The changes are not targeted to any specific sector, although some interesting observations can be made:  

When looking at increases in institutional ownership across the Russell 3000 (see table above) the Energy sector stands out with Alpha Natural Resources and Sunoco having seen increases of 17% and 10% respectively. The Consumer Services sector also features twice in the list of top risers with Vail Resorts and Career Education both increasing their institutional holdings to 22% of total shares. GT Advanced Technology saw institutional holders increase their stakes by a third to 38% of total shares.

 

In Europe institutions piled into Materials companies with Mondi, Heidelbergcement, Lanxess and Holden all featuring on the list of shares with large increase in institutional ownership. Institutions also bought Real Estate and Capital Goods shares.   

Materials and Software companies dominate the list of U.S. stocks which saw a decrease in institutional holdings (see table above). Many of these featured prominently in the news in the wake of the recent meltdown, most notably AOL which saw institutions pare their stake by 12% following disappointing earnings which led to a 31% price slump. The pharmaceutical company Dendreon also saw institutions scale back their holdings in the face of a staggering 72% price decline in the wake of disappointing news about its cancer treatment.

 

In Europe, institutional investors sold off a fifth of their holdings in K S and currently hold 19% of total shares. Societe Generale also saw these investors trim 7% of their stakes to 17% of total shares, after the shares plunged by a third. This fall was reported to have partially prompted French regulators to restrict short selling in Financial stocks. It is worth noting that institutional investor stakes in Societe Generale are still above the average holdings in French equities of 16%.

 

Final word: judging by holdings of institutional investors, it seems they are more worried about the prognosis for Europe than the outlook for the US. It is worth highlighting that shares which saw investors scale back their holdings fell by more than their reference index. These underperformed the Stoxx 600 by 6% in Europe and the Russell 3000 by 5% in the USA.