What is Net Institutional Sales (NIS)
Net institutional sales (NIS) is a measurement used when screening for securities that are being sold, on a net basis, by institutional investors.
Net institutional sales examines the net sales of a company's shares by large institutional investors such as pension funds and hedge funds. A stock with a high (negative) amount of net institutional sales would suggest that institutional investors, in the aggregate, no longer feel they should hold the stock.
- Net institutional sales measures overall purchasing of a stock to overall selling and is expressed as a net number.
- Traders hoping to identify stocks being actively sold by institutional investors can use net institutional sales as a stock screener.
- However, as passive investing supplants active fund management, net institutional sales is becoming less meaningful as a sentiment indicator.
Understanding Net Institutional Sales (NIS)
Net institutional sales is a popular stock screening filter used by traders hoping to identify the stocks that are actively being net sold by institutional investors. The measurement is a net number, because it compares overall purchasing of the stock to overall selling of the stock.
Traders who want to capitalize on the information may join the flow by short selling the stock, which in turn could lead to more downward pressure. As calculated as a ratio, a stock with a net institutional sales ratio of -10% would suggest that institutional investors are selling 11 shares of the firm for every ten they buy.
A number of websites and data service providers track net institutional sales. However, large institutional investors release details of portfolio holdings (and by extension, trading activity) only on a quarterly basis, which means that the average investor or even a professional trader will not know exactly who bought or sold a specific stock during the previous quarter.
This is important because not all institutional investors are created equal—some know what they are doing, others do not. A net institutional sales ratio could be -10%, but if "dumb money" is doing the selling and "smart money" is buying, then the negative ratio could give out a false signal.
Moreover, with the surge of passive investing, a dwindling amount of trading is carried out by actively-managed funds, making net institutional sales less meaningful as an indicator of a sentiment toward a certain stock.