Institutional investors are responsible for the vast majority of trading in the stock market, an important aspect of how to buy stocks. Small investors should want to tag along with the best mutual funds.
Institutional sponsorship simply refers to ownership of a stock by mutual funds, banks, pension funds and other large institutions. These professional investors have teams of analysts researching thousands of stocks, so it's good confirmation to see them buying a stock you're considering. It's even better to see the number of funds that own a stock rising quarter over quarter, since it indicates increasing demand.
The IBD Sponsorship Rating helps investors easily gauge the quality of a stock's institutional ownership. The rating looks for funds that have outperformed the market over the last three years. The scale ranges from A (best) to E (worst).
The Sponsorship Rating can be found on the IBD MarketSurge weekly chart in the fundamental databoxes and in the IBD Stock Screener.
Another sign of institutional sponsorship is when the number of funds owning the stock rises in the most recent quarters. Ideally, you should see an increase in fund ownership quarter over quarter. This data can be found in MarketSurge or in IBD Stock Checkup.
IBD's Sponsorship Rating should not be confused with the Accumulation/Distribution Rating. The latter uses price and volume action over the last 13 weeks, using volume as an indicator of institutional activity in the stock.
How To Buy Stocks: Tracking Top Mutual Funds
For a deeper look at sponsorship, an essential resource is the Owners & Funds section of IBD MarketSurge, located in the pullout panel to the right of every chart. It includes the percentage of the stock owned by funds, fund ownership totals over eight quarters, and which funds in the IBD Mutual Fund Index hold it.
Use the 0MUTI (zero) symbol to discover the IBD Mutual Fund index using IBD Charts or IBD MarketSurge. In MarketSurge you can see the 20 funds that make up the IBD Mutual Fund index, including the vaunted Fidelity Contrafund (FCNTX).
From there, it's a few easy to clicks to see the fund's holdings and the size of the position within the portfolio.
Fidelity Contrafund Holdings: Meta, Nvidia
For example, the Fidelity Contrafund's two largest positions are Meta Platforms and Nvidia. Meta is a whopping 15.7% position in the latest reporting period, while Nvidia is an 8.7% position, per MarketSurge.
In addition, MarketSurge users can see the change in number of shares owned by an IBD Mutual Fund index component over the last four quarters.
In the quarter ended March 2024, Contrafund owned 41.36 million shares of Meta. As of December 2024, the fund had reduced its position to 41.13 million shares. With respect to Nvidia, Contrafund had reduced its position from 100.18 million shares in March 2024 to 96.59 million shares in December.
Be sure to follow Scott Lehtonen on X at @IBD_SLehtonen for more on how to buy stocks, the Dow Jones Industrial Average and the stock market today.
