TARGETING YOUR NEXT

LARGEST SHAREHOLDERS
IMPROVE THE BALANCE OF COMMUNICATIONS. MOVE BEYOND
THE TOP 30—ENGAGE THE NEXT 70.
Companies often narrow the audience of over 10,000 Stock Price Correlation
institutional investors by communicating primarily We found consistent links between stock prices and RECOMMENDATION
with their largest shareholders. Strategic investor the trading imbalances of top 100 shareholders. Investor marketing efforts
Moreover, the relat- should target the widest set
marketing should target both current and prospective Driving Stock Prices of most relevant investors—
shareholders exhibiting the greatest potential impact. next 70 explanatory power is ionship was equally considering fundamental
However, even the most rigorous investor relations comparable to the top 30 strong for the next compatibility and potential
2 impact on the stock. Many of
efforts are likely to dedicate a disproportionate Top 30 Next 70 70 (R =56%) and the identified investors will
amount of time to the 30 largest shareholders. 8% 2
R = 0.52 2
R = 0.56 top 30 (R2=52%). already be shareholders of
Instead, companies should proactively engage the S&P 500 price chg Q/Q
The chart to the left varying degree.
4%
next 70—consider the following findings. shows that, over an The top 30 – next 70 analysis
0% eight quarter period, provides a framework for
Shareholder Diversification segmenting, prioritizing, and
roughly 50% of the improving the balance of
In our analysis of the -4%
S&P 500 price communications among a
S&P 500 Shareholders changing ownership of company’s 100 largest
top 30 own an avg 3.2x -8% changes were attrib- shareholders.
the S&P 500
more than the next 70, but utable to net sale
companies over two -12%
Target the next 70 for the
the ratio has been declining 1 imbalances by the following four reasons:
years, we found that -20% -15% -10% -5% 0%
S&P 500 Q/Q Sell Imbalance
top 100 share- 1) Diversification
Share ratio (top 30/next 70) the 30 largest share-
4.3 holders. While less The next 70 shareholders are
holders control less becoming increasingly more
consistent at the sector and stock levels, in
4.0 and less relative important with faster growth
aggregate, demand from the top 30 and next 70 rates in share ownership
3.8 ownership, with the
drives market value. However, promoting positive than the top 30. And while
average share ratio the top 30 do still own 3x as
3.5 momentum among the next 70 may offer a greater
(top 30/ next 70) many shares as the next 70,
return on time investment than trying to minimize the ratio declined 21% from
3.3 decreasing by 21%
net sales among the top 30. 4Q06 to 3Q08.
3.0
from 4Q06 to 3Q08.
2) Trading Activity
4Q06 4Q07 3Q08 This shift in balance, Impact Potential The next 70 have higher
which was notably Top 30 shareholders regularly acquire overweight turnover rates, moving 2x
positions that may signal greater relative conviction in more of their shares each
consistent in all 10 S&P sectors, reveals the ever- quarter than the top 30.
increasing significance of the next 70. an investment opportunity. The next 70, on the other Engaging the next 70 should
hand, are more likely to hold underweight positions. reduce volatility.
Trading Activity
In fact, the next 70 3) Stock Price Correlation
We found that the next 70 shareholders consistently The Impact Potential There is a strong relationship
of weighting expansions is allocated just 0.64%
trade 2x more of their shares than the top 30, and between stock prices and
greatest among the next 70 of equity assets to the trading activity among the
the ratio held constant in all 10 S&P sectors over
S&P 500 companies 100 largest shareholders.
eight quarters, even as S&P volume increased 93%. S&P 500 avg port weight, % Furthermore, the relationship
1.75 over 3Q08, compared
For example is equally strong for the next
The Next 70 Shareholders to 1.07% for the top 70 as it is for the top 30.
the fraction 1.50
consistently trade 2x more of their 30. Overall equity Demand from both groups
shares even as volume rises of shares 1.25 drives market value.
allocations declined
traded by 4) Impact Potential
Trade-to-own ratio (next 70/top 30) 1.00 greatly from 4Q06 as
S&P 500 Volume the next 70 The most overweight
investors moved out shareholders (top 30) are
in health 0.75
3Q08 259B 1.79 1.81 1.70 1.91 of stocks, but the more likely to sell than
care was 0.50 continually raise the over-
relative spread was
1.89 in 4Q06 4Q06 4Q07 3Q08 weight ceiling. The next 70,
consistent in every who are generally under-
4Q07 175B 2.10 1.84 1.88 2.18 and 1.79 in Top 30 Next 70
sector over eight weight, have more potential
3Q08. Grea- impact as they move towards
quarters, with the top 30 allocating roughly 1.5x more equal and possibly
4Q06 134B ter turnover
1.89 1.99 2.05 1.97 equity to S&P 500 companies. The top 30 are overweight allocations.
levels high-
overweight and unlikely to buy more—and could even
Health Care Tech Financial Energy light the
sell to realize gains or rebalance their portfolios. The
necessity of reaching out to these investors.
next 70, then, represent the greater relative upside
Effectively managing the perceptions, confi-
potential for as long as they remain underweight.
dence, and asset allocations of the next 70 could
Moving the next 70 towards an index or portfolio
calm volatility, and influence the duration and
relative equal weight would create significant
size of ownership.
demand.

1
This report analyzes quarterly trading data from 4Q06 to 3Q08 of the top 100 active shareholders
(i.e. excluding index and passive/quant) of the S&P 500 companies, segmented by the top 30 and next 70.