And the Survey Says… (The Use of Surveys in Investment Research)


New York, NY – Over the past decade, institutional investors have dramatically increased their use of primary research as part of their investment research process as they have come to rely less on sell-side research and have come to rely more on their own internal research capabilities.  However, this does not mean that all forms of primary research have been become equally popular.  One form of primary research that has grown less than we might have expected is the use of formal or quantitative surveys – one of many discoveries in Integrity’s upcoming ResearchFocus report on the use of custom surveys.  

The Use of Surveys by Investors

According to a recent survey conducted by Integrity Research Associates and partner ValueNotes as part of our upcoming ResearchFocus report on this topic, approximately 38% of sell-side and buy-side investment professionals use surveys as part of their investment research process. 

Sell-side firms use surveys to a slightly greater extent (43%) than buy-side firms (36%).  Part of the reason for this discrepancy is that sell-side analysts can leverage the relatively high cost of conducting surveys across a large number of clients.  In addition, sell-side analysts don’t tend to have the same time pressure to evaluate a large number of investment ideas quickly that buy-side analysts have.  Buy-side investors also value sell-side research that includes the kind of proprietary data that only can be sourced through the implementation of custom surveys.  

Even so, currently the demand for survey providers to cater to buy-side and sell-side analysts and investors is rather small when compared to the overall survey research business across other industry segments.  A few of the reasons for this discrepancy are discussed in the next section.

The Case Against Survey Work

According to our study, 62% of respondents to Integrity’s interviews do not use surveys as part of their investment research process. The reasons they gave to exclude survey research are discussed below.

One of the underlying reasons institutional investors don’t use surveys in their research process is because they already get more external research (some of primary in nature) than they need.  Buy-side investors are inundated with data and analysis forwarded by the sell-side and independent research firms. Several fund managers mentioned that their analysts perform extensive analysis of the existing information made available to them by these parties. Consequently, they feel that there is no intrinsic ‘added value’ in carrying out their own custom survey work.

One of our respondents shared their sentiments toward survey work. A portfolio manager from an American investment firm stated:

“There are very few investments where a survey result is the difference between a stock purchase and a sale.”

Both sell-side and buy-side professionals felt that one of the primary reasons they did not conduct more formal surveys was the long time frame it takes to complete them.  This is particularly critical for buy-side analysts and portfolio managers who, at any given time, have dozens of investment ideas they want to validate or invalidate.  They need to quickly decide if these investment ideas are worth investing more time and money to conduct a more detailed analysis on.  Unfortunately, one formal survey can take weeks to complete – too long for most institutional investors who are looking at other more time sensitive opportunities.

The high costs of conducting most formal surveys are another reason that prevents most buy-side and sell-side investment professionals from commissioning survey work. The majority of investors consider custom surveys as not feasible based on their cost-benefit analysis, especially considering that many of these projects would have to be conducted numerous times throughout the year.

Some investors also feel that the quality of the data collected in surveys is not terribly accurate.  This typically refers to the fact that some sell-side or buy-side analysts have found that survey results are often not very predictive.  This could be the case for numerous reasons including conducting surveys with unrepresentative samples, or using survey instruments that are unclear or confusing.

In some cases, investors simply do not find a good match between their investment styles and survey research.  Financial institutions that focus on statistical arbitrage or other short term strategies depend on live market data for their analysis.  They thus have low requirement for any primary research.  Similarly, quantitative oriented investors do not find value in most survey work since they rely primarily on large sets of historical data, regardless of its primary or secondary sources.   Thus, collecting data using surveys could take a long time and cost a significant sum of money. 

In sum, investors from both the sell and buy-side thought that the greatest drawbacks of survey work are that they take a large amount of time to execute, command a high cost compared to the value sought, the data collected are inaccurate (unpredictive), or they are not consistent with the type of investing they undertake.  It is important to note that these comments are specifically focused on conducting formal quantitative surveys versus informal qualitative ones that the analyst might conduct his/herself.

The Case For Survey Work

As discussed above, 38% of sell-side and buy-side professionals responded that they do use and highly value survey research.  Furthermore, these users expressed interest in continuing to use surveys in the near future.  Investors mentioned a variety of reasons for using survey work as part of their research process (discussed below).

The most popular reason for sell-side and buy-side professionals to use surveys is to confirm an investment thesis. Buy-side firms have mentioned that with active investment styles and the need for predictive information and insight, surveys have proven important in providing timely information that is not also widely available in the market. Surveys are generally meant to be a confirmatory research tool; this is perhaps one reason why the majority of our sample also uses this research technique for the confirmation of investment theses.

Example: An investor tracking the IT sector has an investment hypothesis that one company’s stock will rise in response to the release of a revolutionary networking solutions product in the next month. A custom survey among potential business clients could reveal the market’s actual interest and scope for the product, confirming or disproving the investor’s thesis.

One of the major advantages that surveys offer are that sell-side or buy-side analysts can collect new proprietary data that is not available to the rest of the market.   

The data discussed in the example below, if found to be predictive of some important metric like price, sales, costs, future orders, etc., can be used to greatly increase the accuracy of the analyst’s forecasts, and can increase their ability to profitably invest in this sector.

Example: An analyst might believe that a new producer of stents is likely to take significant market share from existing suppliers.  Consequently, this analyst conducts a quarterly survey of 200 cardiac surgeons to see what they think of the new firm’s stents, which stents these surgeons are using/ordering and why, pricing trends in the stent industry, etc.

However, the exclusivity of such data may not be as important for some investment companies, as the interpretations derived from this information might differ for each investor. For example, mutual funds emphasize their analysts’ superior abilities to identify market sentiment from numerous industry reports and information sources. Their focus is more on data analysis of secondary research, as opposed to the creation or collection of new proprietary data.

Custom survey work can also help to reveal various trends, risks, and opportunities for investment at an industry level. Opportunistic investors in particular, use surveys to discern market trends that could give early/leading indicators for new investment ideas in established/emerging industries. These studies uncover information that could accurately map the entire supply chain in an industry, to capture on-the-field information through survey methods.

Example: To understand the trends in the restaurant industry, investors could conduct regular surveys with restaurant managers / franchise owners on subjects such as various promotions, price increases, menu alterations, sales performance, average customer traffic, etc.

Besides the reasons explained above, sell-side and buy-side respondents to our interviews revealed that they use surveys to better understand market sentiment and consensus on particular stocks/sectors/regions, etc. This is especially important for gauging ‘investor psychology’ during processes such as tactical asset allocation.

“By using surveys, we get a fair idea of what expectations other investors have on the companies that we cover.” – A European sell side equity analyst (engineering sector).

Insights that are independent of the stock market are also valued by respondents. Equity research reports sometimes present conflicting information, that could be motive driven, reporting favorably on companies for various reasons. Surveys help present unbiased, independent intelligence that is truly reflective of on-the-field market movements.

Surveys also have the ability to cover a large sample of the population for a given study. This form of wide-ranging, aggregated market data is invaluable for gauging trends for investment.  

“Surveys give aggregated results from surveyed physicians. Surveys give me answers from 30 physicians as opposed to talking with one or two. Survey work helps a lot.” (A healthcare analyst at a US based investment management firm).

Having made a case for the use of surveys as part of investment research process for a variety of purposes discussed above, it is important to note that investors rarely use surveys for the generation of new investment ideas or theses. This is due, in large part, because surveys aim to fill in information gaps, and is a means of validating investors’ or research analysts’ hypotheses. Surveys provide a quick way to bring objectivity into the analysis for investment theses, but it is not usually a means to generate new themes.


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