The top performing equity buy recommendations for the three year period ending September 30, 2016 came from boutique investment bank FIG Partners, according to performance information collected by Investars, a research performance measurement and commission management systems provider.
Investars collected performance data on 147 research providers for the period from October 1, 2013 through September 30, 2016 on which we have based our analysis. Investars calculates buy recommendation performance by tracking the buy recommendations as if an investor had invested equal amounts of cash into each stock in the research firm’s buy portfolio. A buy remains a buy until changed to a hold or a sell.
FIG Partners, a boutique investment bank which tracks community banks, had the best 3 year buy performance, based on a limited number of buys. Its recommendations were accompanied by moderate levels of risk, with a maximum drawdown of -18%, the same as the maximum drawdown for the S&P 500 during the period.
Boenning & Scattergood, a small Philadelphia-based retail brokerage, had the second best performance for its buy recommendations. Buy recommendations calculated by Verus Analytics for Thomson Reuters Company-in-Context reports had the third best record of the firms tracked by Investars.
Firms with Top Performing Buy Recommendations for the 3 year period ending December 2015
The top ten firms had better performance for their aggregate buy recommendations than the S&P’s 11% return for the three years ending September 30th.
Six of the top ten firms are independent research firms, with four boutique investment banks also showing well.
Of the top ten performers, Boenning & Scattergood had the best risk/return profile for its buy recommendations. Its maximum drawdown was significantly better than the S&P 500 (-13% vs. -18%) while its performance of its recommendations exceeded the benchmark.
Duration of Recommendations
Leerink Partners and Nobel Financial Group, both healthcare-oriented investment banks, had the longest average durations for their buy recommendations, averaging nearly 7 months. In contrast, the buy recommendation duration for the quantitatively oriented research firms –Thomson Reuters/Verus and Zacks Investment Research– averaged around one month.
The longer the holding period, the more likely the firm’s performance can be captured by investors following its recommendations. Also, longer holding periods represent lower trading costs. On the other hand, model-driven recommendations are typically updated as soon as new information is available, making the recommendations as fresh as possible.
One Year Returns
The last three years have been a generally positive environment for stocks, and the last twelve months even more so, despite increased levels of volatility. Therefore, it is revealing to examine the 1 year returns.
The best one-year buy performance was from Boenning & Scattergood, Inc (30%). Leerink Partners had the lowest 1-year return (+6%) among the top ten.
Number of Buy Recommendations
The number of buys and sells distinguish the model-driven research firms from the boutiques. The quantitatively oriented firms—Thomson Reuters/Verus, Zacks and Ford—have broad coverage combined with short durations associated with their recommendations.
The third quarter was mostly calm for stocks. The S&P 500 rebounded from the turbulence created by the Brexit vote to reach its first record in more than a year in early July. The index then went two months without a move of 1% or more, until early September, when investors sold stocks and bonds amid fears central banks might pull back from their easy-money policies sooner than expected. Given the relatively benign environment for stocks in the third quarter, the buy recommendations of these top ten firms performed well.