5 months ago • 2 mins
Over-owned or under-owned are common terms thrown around in professional investor circles, referring to red flags of overhyped shares and opportunities in unsung ones. Taken literally, these terms are meaningless. After all, there’s only a certain amount of shares in issue at any one time, and they have to be owned by someone. But if you think of the terms as distinguishing investments that are popular among professional investors from the unpopular ones, then they could come in handy.
Take a look at this scatter graph from investment house Robert Baird. You’ll see a load of S&P 500 firms plotted by their size (market capitalization) along the bottom. Along the side, you’ll find the percentage of professionally managed funds that have the company in their top ten holdings, taken from a sample of 680 funds that have a US stock benchmark like the S&P 500. Size comes into it because the bigger the company, the more likely it is to be a top-ten position given its benchmark weight. Case in point: between a third and two-thirds of those 680 funds boast Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG), and Amazon (AMZN) companies in their top ten.
So any firms above the dotted blue line feature heavily in top-ten positions relative to their size, meaning they’re popular – or over-owned – among pro investors. The opposite’s true for those under the dotted line.
Check out Tesla (TSLA): it’s deep in the under-owned territory, with only around 5% of those 680 funds reporting it as a top-ten position. That’s despite a nearly $900 billion valuation and a place as the fifth-biggest stock in the S&P 500 with a nearly 2% weighting. That means if you don’t own Tesla shares and you’re trying to beat the S&P 500, every 10% Tesla moves higher costs your fund 0.2% performance against the S&P 500. That might sound small, but it could drag you down over time. And if investors then feel the pressure to buy the stock and close that gap, there could be a long line for Tesla shares if they keep their momentum.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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