Archive for May 29, 2008

How much equity is owned by retail investors?

ProxyDemocracy’s main target audience is retail investors — individuals who own stocks or mutual funds. As I’ve worked on this project over the last couple of years, I’ve done research at various points to determine how much equity is owned by different types of investors. It’s surprisingly hard to find numbers on this. I think I have good numbers now but please let me know if you know of better figures.

The main source I use is the Flow of Funds data released quarterly by the Federal Reserve.┬áTable L 213 records the equity holdings of different types of investors — households, mutual funds, private and public pension funds, etc.

As of the fourth quarter of 2007, US households own about a quarter of US equity, and mutual funds own almost exactly the same amount. Household equity holdings have shrunk somewhat since 2003, but mutual fund holdings have grown; together they owned about half of US equity in both years.

Now, some individual investors are foreign, so the total rate of retail investors in US equities is somewhat higher than 25%, although I’m not sure how much. I would guess that foreign holders of US equity are somewhat more institutional than are domestic holders; that would add another 3% to the 25% of holders who are US retail investors.

The bottom line is that a little over a quarter of US equity is owned by domestic and foreign retail investors. Another quarter is owned by mutual funds, which means that ProxyDemocracy’s audience owns over half of US equity, directly or indirectly. As we add pension fund voting data (currently we only have CalPERS), we add another 10% or so to that figure.

I created a treemap of the Federal Reserve data on Many Eyes; WordPress apparently won’t let me embed the visualization in the blog (grrr), but you can click on the miniature version of it below to see and interact with the full visualization (and download the data). The blue block in the tree map represents the equity holdings of US households.

[UPDATE — November 12, 2008] I learned recently that the “households” category in the Federal Reserve data I used includes not only individual investors but nonprofit organizations as well, which would encompass university endowments, private foundations, labor unions, and churches. (The Fed actually calculates holdings in the “household sector” as a residual — it collects data for all the other, more concentrated sectors, and then assigns to the household sector the difference between total equity holdings and the amount counted for the other sectors.) So it was not correct to use “household sector” and “individual/retail investor” synonymously, as I did above. I estimate that nonprofits hold around 8-9% of the equity in the household sector, which means that individual investors probably hold a little under a quarter of all equity rather than a little over a quarter, as I stated below.

Let me explain a bit how I ended up with that figure. In 1996, the last year in which the Fed broke out the equity holdings of nonprofits, 7% of the household sector’s equity was held by nonprofits. The period since 1996 has been marked by the steady advance of mutual fund holdings (at the expense of equity holdings) by the household sector, and I would guess that this shift has happened faster among individual investors than among nonprofits, so let’s assume that about 8.5% of household sector equity is held by nonprofits now. That would mean that the numbers I used above are a bit high — I would put the proportion of equity held by individuals (US and foreign) at about 23% rather than a little over 25%.

The idea that about 8.5% of household sector equity is held by nonprofits roughly comports with my numbers about the asset holdings of foundations, university endowments, and churches. (Prepare for very back-of-the-envelope calculations.) According to the Foundation Center, family and community foundations had about $260 and $50 billion in assets (respectively) in 2006; NACUBO says that the biggest 800 university endowments add up to about $400 billion; and ICCR says its members (religious institutions) have about $100 billion in assets. So that adds up to about 800 billion in assets; let’s guess that there’s another 400 billion floating around in other universities, other churches, labor unions, etc. My impression is that institutions in this category would hold 20-40% of their assets in public equities, and perhaps a little more in mutual funds, with the rest in fixed income assets, real estate, and other assets. So that puts about 400 billion of equities in the nonprofit category, which is 8% of the 5 trillion held by the household sector.

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May 29, 2008 at 1:48 pm Leave a comment


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