DEFINITION of 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. NIS examines the net sales of a company's shares by large institutional investors such as pension and hedge funds. A stock with a high (negative) amount of NIS would suggest that institutional investors, in the aggregate, no longer feel they should hold the stock.
Understanding Net Institutional Sales (NIS)
NIS is a popular screening category 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 selling stock short, which in turn could lead to more downward pressure to whatever stock they are playing with. As calculated as a ratio, a stock with a NIS 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 NIS. 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 NIS ratio could be -10%, but if "dumb [institutional] money" is doing the selling and "smart money" is buying, then the negative NIS 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 the NIS less meaningful as an indicator of a sentiment toward a certain stock.