Based on data provided by Investars, a well-known research performance measurement firm, the research recommendations produced by many of the top ranked research providers they track outperformed the US equity market over the past 3-year, 2-year and 1-year period.
Investars collected performance data on 131 research providers for the period from July 1, 2020 through June 20, 2023, 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. We only included research firms that had a minimum of 50 stocks under coverage over the period.
BUY/SELL Recommendations
According to Investars, the three-year Buy-Sell performance of Capital One Securities ranked first with a performance of +220.03% (from July 1, 2020 to June 30, 2023). MKM Partners was ranked second and independent research provider Sidoti & Co. ranked third. All three of these top ranked firms outperformed the S&P 500 (total return) over each of the three time periods.
As you can see from the above table, seven of the top twenty research providers tracked by Investars were independent research providers (highlighted in yellow), while thirteen providers were investment banks. It is important to note that the relative strength of sell-side firms in the above table was impacted, to some degree by the fact that investment banks, on average make far fewer sell recommendations that independent research firms so. Consequently, during bullish periods, investment banks tend to do better than indies.
The performance of the Buy-Sell recommendations from all twenty research firms in this list outperformed the S&P 500 over the past 3-year period; eighteen of the twenty firms outperformed the S&P 500 over the last 2-year period; and, twelve of the twenty firms outperformed the S&P 500 over the past twelve months (ending June 30, 2023).
BUY Recommendations
Over the past 3-year period Seaport Global Securities was ranked first when tracking only their BUY recommendations with a performance of 191.35%. Johnson Rice & Co. and Capital One Securities were ranked second and third, respectively over that same 3-year period. The Buy recommendations from all three of these top ranked firms outperformed the S&P 500 (total return) over the 3-year, and 2-year periods. Only Seaport Global Securities outperformed the S&P 500 over the past 1-year.
As you can see from the above table, over the past three years the Buy recommendations from eleven of the top twenty research providers tracked by Investars were independent research providers (highlighted in yellow), while nine providers were investment banks.
The performance of the Buy recommendations from all twenty research firms in this list outperformed the S&P 500 over the past 3-year period; fourteen of the twenty firms outperformed the S&P 500 over the last 2-year period; and, eleven of the twenty firms outperformed the S&P 500 over the past twelve months (ending June 30, 2023).
Our Take
The top-three ranked research firms’ Buy-Sell performance benefitted from a limited number of great sell calls. For example, Capital One only had 1 Sell call, while MKM had 2 Sells and Sidoti had 1 Sell recommendation over the past three years.
Seaport Global Securities, Johnson Rice and Capital One all had strong performing Buy recommendations over the past 3-year and 2-year periods. It is interesting that IRPs performed slightly better when evaluating just their Buy recommendations, as they generally have more sell recommendations than their sell-side counterparts. Clearly, over the past three years sell recommendations were a drag on most research providers’ performance.