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Why Glencore Plc’s (LON:GLEN) Investor Composition Impacts Your Returns

Cole Patterson

I am going to take a deep dive into Glencore Plc’s (LON:GLEN) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct GLEN’s shareholder registry.

See our latest analysis for Glencore

LSE:GLEN Ownership Summary August 7th 18

Institutional Ownership

Institutions account for 33.37% of GLEN’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. In the case of GLEN, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into GLEN’s ownership structure and find out how other key ownership classes can affect its investment profile.

Insider Ownership

An important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. A major group of owners of GLEN is individual insiders, sitting with a hefty 14.94% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It may be interesting to take a look at what company insiders have been doing with their holdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.

General Public Ownership

A substantial ownership of 43.08% in GLEN is held by the general public. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Equity Ownership

With an ownership of 8.61%, private equity firms are a major stakeholder in GLEN and are in a position to play an important role in shaping up corporate strategy with a focus on value creation. An investor should be encouraged by the ownership of these institutions who are known to be experts in increasing efficiency, improving capital structure and opting for value-accretive policy decisions.

Private Company Ownership

Potential investors in GLEN should also look at another important group of investors: private companies, with a stake of 0.0012%, who are primarily invested because of strategic and capital gain interests. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence GLEN’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.

Next Steps:

The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will enable shareholders to comfortably invest in the company while avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only determining factor when you’re building an investment thesis for GLEN. Rather, you should be examining fundamental factors such as Glencore’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for GLEN’s future growth? Take a look at our free research report of analyst consensus for GLEN’s outlook.
  2. Past Track Record: Has GLEN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of GLEN’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.