Fund Share Inventory...Is Every Share Owned at All Times?

bee

I read this quote and wondered if when a share of a stock, bond, etf or mutual fund is sold is there always a buyer on the other side.

"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” – William Feather

I imagine not. Outstanding shares (inventory of unsold shares) must exist.

Also, is there an upper limit to shares of a particular security? Are there just so many shares of APPL, QQQ, or VWINX in the system?

carew388

+1 I've wondered this myself, but was always afraid to ask any brokerage professionals about this , to avoid any condescending lectures !

msf

Stock companies specify the number of shares they are authorized to issue. This can be increased by the shareholders. A company is not required to issue all shares authorized.

When shares are issued they are sold; for a public company this is generally done through public offerings. A company can buy back some of its shares. It then holds these shares, which are called treasury shares. This is not an inventory of unsold shares - the shares were issued, sold to buyers who subsequently sold those shares to the company acting as a buyer. They are no more unsold than shares that you bought and have not resold.

https://www.accountingtools.com/articles/the-difference-between-authorized-and-outstanding-shares.html

I'm not sure whether all ETFs have limits on authorized shares (it could depend on their legal structure, e.g. UIT or OEF), I don't know. But at least some ETFs have limits, because several years ago one of them forgot to increase its authorized amount and for a few days couldn't issue more shares. That resulted in a large tracking error.

OEFs simply create more shares willy-nilly as needed. CEFs operate like stock companies.

The main difference between an open-end company and a closed-end company is how the shares are purchased and sold. An open-end company offer new shares to any investor who wants to invest. This is known as a continuous primary offering. Because the offering of new shares is continuous, the capitalization of the open-end fund is unlimited. Stated another way, an open-end fund may raise as much money as investors are willing to put in. An open-end fund must repurchase its own shares from investors who want to redeem them. A closed-end fund offers common shares to investors through an initial public offering (IPO) just like a stock. Its capitalization is limited to hte number of authorized shares that have been approved for sale. Shares of the closed-end fund will trade in the secondary market in investor-to-investor transactions on an exchange or in the over-the-counter market (OTC), just like common shares.

https://securitiesce.com/series-6/understand-mutual-funds/