With MiFID II slated to be rolled out next week, the question many research providers are asking is how they can prove their worth to buy-side clients who now need to justify their research spending. While many are taking different approaches, a few research firms are trying to prove their stock picking ability by launching funds, ETFs and other investment vehicles based on their research calls.
Research Providers Turn to Manage Money
According to an article published by Bloomberg, quantitative research firm, Libra Investment Services (LIS) initially garnered accolades as one of the top European contributors to a well-known alpha capture system. Consequently, the firm set up LSA Equities and raised $30 mln to manage funds based on the same research it sells to clients. LSA has produced total returns of 22.4% since its inception in October 2015 through November this year, compared to 14.9% for the Stoxx 600 Index over the same period.
Venice Florida based Ned Davis Research has decided to aggressively pursue the creation of ETFs and other investable products based on its research. NDR has partnered with Guggenheim Investments to launch a series of thematic unit investment trusts; they partnered with VanEck to create an open end mutual fund; and, they partnered with RIAs Global View Capital Management and Carson Wealth Management to provide their models as tactical asset allocation overlays to their money management operations.
Bloomberg reports that independent French firm, Alpha Value SA has launched a basket-traded fund for one of its insurance clients that will be managed by AlphaValue’s investment committee. The fund has returned 3.47% since it was set up in May, compared with a fall of 0.73% for the Stoxx 600. Alpha Value has additional investment products in the pipeline based on customer demand.
Macro strategy research firm Ekins Guinness has recently launched a UCITS fund called the TB Enigma Dynamic Growth Fund which invests in a portfolio of ETFs based on the allocation strategies developed by Ekins Guinness. Ekins’ research methodology combines valuation models with momentum metrics to develop model portfolios at the asset level as well as by region and for UK equity sectors.
According to Bloomberg, New York-based sell-side firm Sanford C. Bernstein, recently launched U.S. and Global ETFs that track stocks rated “outperform” by the firm’s research analysts. It wants to demonstrate that its in-depth fundamental research and quantitative model add value to active management at a time when passive strategies are enjoying greater inflows. The U.S. ETF returned 6.02% since it started in October, beating a 4.55% gain for the S&P 500 Index over that same period. The global fund rose 2.44% compared with a 2.52% gain for the FTSE All World Index over the same period.
Other independent research firms such as CFRA and Market Grader have recently launched various indices based on their research. These firms are looking to provide these indices as part of their research product; license them to asset managers who can manage client assets around them; or launch a series of ETFs based on these indices.
Each of these research firms has decided to find new ways to be compensated for their stock picking abilities as they doubt they will be paid appropriately in a MiFID II environment. In most of the cases mentioned above, these firms have chosen to compete with their research clients – either as a way to create a new revenue stream or to prove their capabilities to asset managers looking to use their research in their own investment process. The big question is whether these firms can maintain their focus on producing high quality research while also gathering enough assets to make this strategy work? We will keep an eye on this developing trend.