Passive Funds’ Ownership of US Stocks Soars

The average publicly traded U.S. company has 19% of its shares owned by passive exchange-traded funds and mutual funds, a tripling over the past decade, a new report found. 

The report from Bloomberg Intelligence analyst James Seyffart also found that, despite that number soaring from 6% a decade ago, share prices aren’t affected. 

The growth reflects the strong performance of cheap, index-based strategies compared to more expensive, active strategies—and investors’ growing awareness of the benefits of indexing.  

Passive Ownership Varies  

While 19% is the average, the portion of a company’s shares owned by passive funds varies from close to zero to just over 50%. 

Moreover, the 19% of company shares owned by passive funds today might not capture the full picture. The data Seyffart analyzed excludes assets held in separately managed accounts and collective investment trusts, which often follow passive investment strategies but don’t have detailed reporting requirements. 

On a sector basis, passive ownership ranges from 17% to 27%. Real estate is the most passively owned sector, while communication services is the least.  

According to Seyffart’s analysis, “about 395 US-listed stocks have at least 30% of shares owned by passive funds, with 23 at more than 40% and one above 50%.” 

The study continues: “Yet the growing role of ETFs and indexed mutual funds doesn't appear to be having outsized effects on share prices.”

He looked at shares of Telephone & Data Systems, which has a passive ownership stake of 51.3%—the most of any stock. TDS is a major holding of the SPDR S&P Dividend ETF (SDY), which owns 10% of the stock, yet inflows and outflows from the ETF haven’t had a discernible impact on TDS’ share price. 

Small Cap & Dividend Stocks  

The report noted that stocks with the largest passive ownership “tend to be small and mid-caps that pay dividends and demonstrate value traits, leading to a tilt toward utilities and REITs.” 

Due to their relatively high yields, those types of stocks are purchased by sector, small and midcap, value and dividend funds. 

Those include funds like the Invesco KBW Premium Yield Equity REIT ETF (KBWY), the iShares S&P Small-Cap 600 Value ETF (IJS), the Global X SuperDividend ETF (SDIV) and others.

According to the report, “These categories have grown increasingly popular with passive investors, attracting hundreds of billions of dollars in combined inflows during the past decade.” 

Unique Circumstances  

While passive funds typically don’t have an impact on the price performance of individual stocks, there are unique circumstances where they might. 

Seyffart recounted the story of Gossamer Bio, a biotech company that lost more than three-quarters of its value in December. 

Ten days after the firm’s collapse, the $6.7 billion SPDR S&P Biotech ETF (XBI) purchased 25 million shares of the company, which might have contributed to a 30% surge in the stock.  

The idea that large ETFs can have an outsized impact on stocks of small companies isn’t a new one. In 2020 and 2021, Cathie Wood’s ARK was blamed for causing massive spikes in the shares of certain tech and biotech companies in which her ETFs held huge stakes.  

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