2017 Extel Research Results Belie MiFID II Unbundling Turmoil

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Exane BNP Paribas upended Morgan Stanley for the top European equity research spot in the latest 2017 WeConvene Extel Survey. Absolute Strategy Research remained the top independent in the survey, with AlphaValue continuing in second place, despite overall volatility in the rankings of the independents.  Overall, the Extel results remained relatively tranquil in the run-up to research unbundling under MiFID II.

Exane has had a steady progression over the last four years in its march to the top research spot in the Extel Survey. Bank of America Merrill Lynch which lost the first position to Morgan Stanley in 2015 (having upended UBS two years prior), fell to fourth as UBS rose to third.

Overall the top 10 firms were same as 2016, except for the precipitous decline of Credit Suisse, which fell from 7th last year to 13th this year as its equities business continues to swoon.  Tellingly, Société Générale was Credit Suisse’s replacement in the top 10, moving from 12th to 8th.

Equity Research: Leading Pan-European Brokerage firm for Equity Sectors Research (Based on Commissions Paid) by Key FMs

For the independents, London-based Absolute Strategy Research remained top dog, a position it has held over the past four years.  ASR also was the only independent to place among the top 10 Economics and Strategy providers in the survey (not shown), with Redburn in the 18th position, Gavekal in 20th and BCA in 21st.

In the listing of independents, Paris-based fundamental research firm AlphaValue retained second place while US economics research firm Cornerstone Macro moved to 3rd.

Leading Independent Research Providers (Europe)

Eight the top ten independents in the 2017 Survey were economics/strategy research providers, which historically have dominated the European independent research market, partially reflecting the concentration of macro hedge funds in London.  Oddly, Extel classifies neither Redburn nor Autonomous Research as independents even though they do not offer banking, and so are the only independents among the top 25 European research providers shown in the first table.  If they were included in the table of independents, they would most likely have the top positions.

There was more volatility in the Extel rankings of the independents, perhaps reflecting the smaller payments involved.  There were numerous discrepancies between the rankings reported last year and those reported this year for 2016.  For the most part we included the 2016 rankings reported this year, except in two instances where the discrepancies resulted in a differing directional change between 2017 and 2016.  Longview was reported this year as having been 12th last year – indicating a falling rank when compared with this year’s reported position of 14th. However, last year it was reported 14th, no different from this year’s ranking.  Medley Global was reported 16th last year, indicating a decline this year to 17th, not an improvement from 18th, as currently reported.

However, even among the independents, there was consistency, with eight of the top ten continuing from 2016.  The two newcomers were to the top ten were two US strategy firms, 13D Research and Empirical Research Partners.  The two firms previously ranked by Extel among the top ten independents were The Lazarus Partnership, which fell from 8th position last year to 12th this year, and Agency Partners, which dropped from 9th to 15th.

The 2017 Extel survey results were based on contributions from over 15,561 investment professionals (down from over 20,000 voters last year) at 3,199 buy-side firms.

Our Take

The Extel rankings are another signal that not much has changed in the European research landscape, as yet.  Yes, Exane toppled Morgan Stanley for the lead, but the overall positions of the players have not changed much.  Continental research houses are doing well, evidenced not only by Exane’s rise but also by increasing rankings for SocGen, Kepler, Berenberg, ODDO, Natixis, Mediobanca.

Even among the independents there was minimal change among the top ten providers.  Anecdotally, we are told that the selling environment has been made more difficult by MiFID II, as many asset managers have expressed reluctance to consider new providers as they begin to formalize budgets for research.  Indie salespeople report that many prospects have deferred consideration of new providers to 2018.  For this reason, we suspect that the relatively static Extel research rankings should perhaps be viewed as the calm before the storm.

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About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email: Sanford.Bragg@integrity-research.com

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