Definition
The term clientele effect refers to a theory that states the price of a security is affected by certain shareholders if a company or fund changes its policies. The clientele effect assumes investors are attracted to certain securities because of their past practices.
Explanation
The clientele effect is an investment theory that hypothesizes the investors in a security will have a direct impact on the price of the security when a change in policy affects their investment objective. This theory is based on the notion certain investors are attracted to a company's stock because of their policies. These individuals will buy or sell the security if a change in policy takes place that is aligned with, or no longer aligns, with the individual's investment objective.
For example, investors seeking a reliable source of income are attracted to stocks with relatively high dividend yields. If a company that pays out a high percentage of earnings in the form of dividends were to suddenly lower their dividend payout ratio, these same investors may decide to sell their shares of stock, since it no longer aligns with their investment objective. The clientele effect would explain the lower price of the company's common stock as these former shareholders reduce the overall demand for these securities.
Related Terms
The term conservative investing refers to a strategy that attempts to preserve the value of a portfolio by investing in low risk securities. A conservative investment portfolio would include blue chip stocks as well as fixed income securities.
Moneyzine EditorJanuary 11th, 2024- The term preservation of capital refers to a strategy that attempts to prevent a loss of funds in a portfolio. Preservation of capital is important to investors that are not willing to risk a loss, even in the near term.Moneyzine EditorSeptember 21st, 2023
- The term 90 - 10 strategy refers to the creation of an investment portfolio that allocates 90% of the fund's assets to interest bearing securities and 10% to higher risk securities. The 90 - 10 strategy is a relatively conservative approach to investing.Moneyzine EditorSeptember 20th, 2023
The term 100% equities strategy refers to the creation of an investment portfolio that consists solely of common stock. A 100% equities portfolio can be assembled by an investor, or take the form of a pooled account such as a mutual fund.Moneyzine EditorJanuary 5th, 2024
The term capital growth strategy refers to the creation of an investment portfolio that seeks to maximize value in the long term. A capital growth portfolio will allocate more than half of the fund's assets to equities.Moneyzine EditorJanuary 10th, 2024
The term dividend clientele refers to shareholders that have a common preference for the dividend policy of a company. Dividend clientele will oftentimes pressure companies into dividend policies that are aligned with their investment objective.Moneyzine EditorJanuary 16th, 2024
