Measuring shareholder structure quality: the Dax case study

As mentioned in my article “How to measure stock reputation”, the quality of the shareholder register is the third criteria to rate stock reputation. In this case study, I have decided to examine the 30 companies of the DAX, the largest German stock index.

“Major” institutional investors ownership

The shareholder structure of a listed company is indicative of stock reputation. Indeed, the more prestigious the shareholder base, the better it is for the company’s reputation on the stock market. Generally, the most prestigious investors are the largest (even if there are exceptions to this rule). Therefore, I identified the 150 largest institutional investors (including sovereign wealth funds) managing assets of more than USD 100 billions and named them the “major” ones. Then, for each company of the DAX, I measured how much of the free float those “major” institutional investors owned.

Without surprise, the “major” institutional investors are the main shareholders of the DAX companies. The German economy remains the reference in Europe and attractive to these investors. On average, they own more than 20% of the German blue-chip stocks.

Volkswagen is the company, which has the greatest percentage of these prestigious shareholders. The car manufacturer benefits notably from a significant ownership by the Qatari sovereign funds (QIA). Volkswagen also has the Norwegian sovereign funds (Norges) and Capital Research in its shareholder register. Similarly, the semiconductor manufacturer Infineon, has an excellent rating on this criterion due to its long-term shareholders Dodge & Cox, Capital Research and Allianz Global Investors.

On the contrary, the fertilizer and salt producer K+S has relatively few large institutional shareholders. That can be explained partly by its relatively small size compared to the other DAX companies, but is probably not the only explanation.

Shareholder loyalty

The shareholder register quality also has to be measured in terms of shareholder loyalty. To measure this, I looked at a period of two years to see how many funds were selling their positions each quarter and how many remained as shareholders. By comparing these two pieces of data, I was able to measure the proportion of funds exiting the shareholder register.

Overall, the shareholders of the German DAX companies are relatively loyal. On average, only one shareholder out of 13 leaves a register each quarter. Nevertheless, there exist major differences between companies.

Bayer’s shareholders are particularly loyal to the chemical and pharmaceutical company. Only one shareholder out of 25 sells its position each quarter. More generally, the chemical companies (Henkel, BASF) have succeeded to retain their shareholders.

Alternatively, Commerzbank is suffering from high shareholder turnover. 12% of its investors are leaving the company each quarter, which is three times more than Bayer. This lack of loyalty is also visible in the share performance. Commerzbank has significantly underperformed the DAX index over the last two years.

Conclusion

By combining results concerning the ownership of “major” institutional investors and the ones concerning shareholder loyalty, it is possible to rate the shareholder structure quality of each company. This rating will give the third stock reputation measurement. Within the DAX companies, the car manufacturer BMW has the best rating. This is due to the important ownership of large and long-term funds such as Dodge & Cox and Harris Associates, but also to the high loyalty of its shareholders. On the contrary, the K+S shareholders are not very prestigious or loyal.