Opinions on External Small Cap Research Sources

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On Wednesday, we wrote about Regional Banks being the top providers of Small Cap research in the U.S.  Today, we’d like to dig a little deeper and examine just how popular the regional banks are when compared with other sources of small cap research.

There are a variety of institutions which provide small cap research in one form or another; Large Investment Banks, Regional Investment Banks, Boutique Investment Banks and Independent Research Providers. The largest investment banks are well known while regional investment banks fill the middle of the market, and boutique investment banks are significantly smaller firms who often specialize in a particular product or industry. An independent research provider is research firm that does not conduct investment banking.

Survey participants in Integrity’s 2009 fourth quarter survey of 141 buy-side investors indicated that their most valued sources of small cap equity research were Regional Investment Banks followed by Large Investment Banks, Boutique Investment Banks and finally Independent Research Providers.  The difference in responses between mutual funds, hedge funds, and pension fund participants were minimal for the most part.  Hedge funds found large investment banks to provide the most value for small cap research followed by regional investment banks and boutique investment banks.  Bulge bracket banks and boutique investment banks provided nearly equal value to mutual funds.

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