In the wake of NexPoint Diversified Real Estate Trust's (NYSE:NXDT) latest US$23m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Significantly high institutional ownership implies NexPoint Diversified Real Estate Trust's stock price is sensitive to their trading actions
• 51% of the business is held by the top 9 shareholders
• Insider ownership in NexPoint Diversified Real Estate Trust is 15%

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To get a sense of who is truly in control of NexPoint Diversified Real Estate Trust (NYSE:NXDT), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 56% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And institutional investors endured the highest losses after the company's share price fell by 13% last week. The recent loss, which adds to a one-year loss of 32% for stockholders, may not sit well with this group of investors. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. As a result, if the downtrend continues, institutions may face pressures to sell NexPoint Diversified Real Estate Trust, which might have negative implications on individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about NexPoint Diversified Real Estate Trust.

Check out our latest analysis for NexPoint Diversified Real Estate Trust

What Does The Institutional Ownership Tell Us About NexPoint Diversified Real Estate Trust?

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 NexPoint Diversified Real Estate Trust 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 NexPoint Diversified Real Estate Trust's earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. NexPoint Diversified Real Estate Trust is not owned by hedge funds. Looking at our data, we can see that the largest shareholder is the CEO James Dondero with 14% of shares outstanding. The Vanguard Group, Inc. is the second largest shareholder owning 8.2% of common stock, and BlackRock, Inc. holds about 6.6% of the company stock.

We did some more digging and found that 9 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of NexPoint Diversified Real Estate Trust

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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.

It seems insiders own a significant proportion of NexPoint Diversified Real Estate Trust. It has a market capitalization of just US$158m, and insiders have US$24m worth of shares in their own names. We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 28% 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for NexPoint Diversified Real Estate Trust you should be aware of.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.