Institutional investors may overlook American Financial Group, Inc.'s (NYSE:AFG) recent US$408m market cap drop as long-term gains remain positive

Key Insights

• Significantly high institutional ownership implies American Financial Group's stock price is sensitive to their trading actions
• 53% of the business is held by the top 7 shareholders
• Recent purchases by insiders

If you want to know who really controls American Financial Group, Inc. (NYSE:AFG), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 66% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Losing money on investments is something no shareholder enjoys, least of all institutional investors who saw their holdings value drop by 3.8% last week. However, the 15% one-year returns may have helped alleviate their overall losses. But they would probably be wary of future losses.

Let's take a closer look to see what the different types of shareholders can tell us about American Financial Group.

See our latest analysis for American Financial Group

What Does The Institutional Ownership Tell Us About American Financial Group?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that American Financial Group does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at American Financial Group's earnings history below. Of course, the future is what really matters.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. American Financial Group is not owned by hedge funds. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In American Financial Group's case, its Co-Chief Executive Officer, Carl Lindner, is the largest shareholder, holding 13% of shares outstanding. For context, the second largest shareholder holds about 9.6% of the shares outstanding, followed by an ownership of 9.4% by the third-largest shareholder. In addition, we found that Stephen Lindner, the CEO has 5.7% of the shares allocated to their name.

We did some more digging and found that 7 of the top shareholders account for roughly 53% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of American Financial Group

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

It seems insiders own a significant proportion of American Financial Group, Inc.. It has a market capitalization of just US$11b, and insiders have US$2.3b worth of shares in their own names. That's quite significant. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 12% ownership, the general public, mostly comprising of individual investors, have some degree of sway over American Financial Group. 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 American Financial Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with American Financial Group , and understanding them should be part of your investment process.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com