Which funds own my stock?

When you click the Shareholders tab on a stock data report on Morningstar.ca, the first page you'll see shows a breakdown of the company's total equity and debt, as well as a breakdown of ownership by institutions and mutual funds specifically, and insiders such as company executives. (Insider ownership statistics were discussed in detail in this previous Ask the Expert column.)

Further down the page is a Fund Owners Style section that indicates what types of funds own the stock. A large company whose stock is selling cheaply relative to its perceived value might be owned primarily by large-value funds, while one that is considered attractive due to its growth potential might be more heavily owned by large-growth funds. However, it's not uncommon for growth funds to own value stocks or vice versa, just as funds that fall into one market-cap range may also hold stocks that are not in that range (a large-cap fund may own a mid-cap company, a mid-cap fund a small-cap company, and so on). Seeing which types of funds are most heavily invested in the stock helps investors learn whether fund managers tend to see it as a value, blend or growth play. For example, a look at the Shareholders page for   Toronto-Dominion Bank  TD shows that it is primarily held by large-blend funds but with significant amounts of ownership among large-value and large-growth funds as well.

Concentrate on concentration

The Equity Ownership section, below that, lists the 10 funds owning the greatest number of shares in the stock. However, just because a fund is among the largest shareholders of a stock doesn't necessarily mean its managers have a particularly high conviction in it. Large-cap stocks in particular may be heavily owned by very large funds -- including index funds -- and still not make up a large percentage of the fund's portfolio. You can see this difference by comparing the "% Total Shares Held" column, which shows the percentage of the company's shares owned by the fund, with the "% Total Assets" column, which shows the percentage of fund assets the fund's stake in the company represents.

To see which managers believe in a company enough to build a big stake in it, as a percentage of their assets, you're better off looking under the Concentrated Shareholders tab, where you'll find a list of funds whose ownership stake in the stock represents the largest proportion of that fund's assets. You can also see the star rating for these funds to get a sense of whether a concentrated fund owner has a successful track record of making its big bets pay off.

To illustrate the difference between funds having a large ownership stake in a stock and funds having a more concentrated stake, let's look at an example. Oil producer TransGlobe Energy Corp. TGL counts Fidelity Canadian Large Cap, a huge fund with $4 billion in assets, among its largest shareholders. The fund's stake in the company represents more than 3% of the company's total shares. But because the fund is so large, TransGlobe Energy represents only about one-half of 1% (0.45%) of the fund's total assets, making it a relatively minor holding. Meanwhile, for Steadyhand Small Cap Equity, a much smaller fund with just $52 million in assets, the company represents a major holding at 3.5% of assets, even though the fund owns a fraction of the number of shares owned by Fidelity Canadian Large Cap.

That's why just looking at a list of top funds that own a stock may not be sufficient without also seeing where the stock falls among the fund's top holdings. Furthermore, index funds may show up on the list of top funds owning a stock, which merely indicates that the stock is included in an index tracked by the fund(s) but provides no insight as to what a fund manager thinks of the stock.

Finding widely held stocks

The Shareholders page also includes a section titled Owner Activity, which lists the number of funds that own that particular stock. You can also learn how many funds have initiated a new position in the stock over the past three months, and how many have sold completely out of that stock over the same time, giving you an indication of whether the stock is currently in favour or not.

The fact that many mutual fund managers have decided to own a given company is no guarantee that it will outperform, say, a company whose stock is held by just a handful of funds or none at all. (This may particularly hold true in the small-cap arena, where investment options are more plentiful and the chances of stock overlap among funds is thus reduced.) But it may come in handy when researching a stock before you buy it or if you're thinking of selling a stock you already own. Once you've identified funds that own a given stock, you might consider researching some of their managers to learn about the process they use or see if any of them have written in any of their recent commentaries or fundholder letters about why they own the stock.

One last reason it could be worth your while to see which funds own a stock that interests you is to figure out whether you already own the stock through one of those funds. Buying shares of a stock that is already a major holding in one of the funds in your portfolio risks overweighting the stock. If something should cause the stock to experience heavy losses, you could be hit twice--once by owning the stock directly and a second time through a fund that owns it. Before buying any stock, it's a good idea to look at the Stock Intersection function in Morningstar's X-Ray tool. This tells you which stocks are most prevalent in your portfolio already and can help keep you from unwittingly adding to a position you already own.

Have a personal finance question you'd like answered? Send it to AskTheExpert@morningstar.com.