Today, I will be analyzing Eaton Vance Corp’s (NYSE:EV) recent ownership structure, an important but not-so-popular subject among individual investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine EV’s ownership structure in more detail.
Institutions account for 74.82% of EV’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. Although EV has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. In the case of EV, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into EV’s ownership structure and find out how other key ownership classes can affect its investment profile.
Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. Although individuals in EV hold only a 4.39% stake, given EV is a large-cap company, it is a relatively large amount. This is a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.
General Public Ownership
A substantial ownership of 20.79% in EV is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. Such level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
EV’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will allow an investor to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, other important factors we must never forget to assess are the fundamentals. I recommend you take a look at our latest free analysis report on Eaton Vance to see EV’s fundamentals and whether it could be considered an undervalued opportunity.
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