Institutional owners may take dramatic actions as Bank of Montreal's (TSE:BMO) recent 4.3% drop adds to one-year losses

Key Insights

• Institutions' substantial holdings in Bank of Montreal implies that they have significant influence over the company's share price
• 39% of the business is held by the top 25 shareholders
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

If you want to know who really controls Bank of Montreal (TSE:BMO), then you'll have to look at the makeup of its share registry. With 52% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

And institutional investors saw their holdings value drop by 4.3% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 3.8% might not go down well especially with this category of shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in Bank of Montreal's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of Bank of Montreal.

Check out our latest analysis for Bank of Montreal

What Does The Institutional Ownership Tell Us About Bank of Montreal?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Bank of Montreal does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Bank of Montreal's historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Bank of Montreal is not owned by hedge funds. The Vanguard Group, Inc. is currently the largest shareholder, with 3.7% of shares outstanding. The second and third largest shareholders are BMO Asset Management Corp. and Royal Bank of Canada, Banking & Securities Investments, with an equal amount of shares to their name at 3.7%.

On studying our ownership data, we found that 25 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Bank of Montreal

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our data suggests that insiders own under 1% of Bank of Montreal in their own names. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own CA$29m worth of shares (at current prices). Arguably recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 48% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Bank of Montreal better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Bank of Montreal , and understanding them should be part of your investment process.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.