Indie Firms Outperform Investment Banks For 3 Years Ending 2014


The stock recommendations of Independent research firms outperformed bulge bracket, regional and boutique investment banks for the three years ending 2014, according to performance information collected by Investars, a research evaluation and commission management provider.

Investars collected performance data on 143 research providers for the period from January 1, 2012 through December 31, 2014.  The universe includes 9 bulge bracket banks, 88 mid-sized and small investment banks, and 46 independent research firms.

A positive period

On average each category of provider had positive returns for the period, during which the S&P 500 had an average annual return of 20.4%.  The overall buy recommendation performance of bulge firms and independents outperformed the S&P 500, while mid-size and small investment banks slightly underperformed.

Performance of Stock Recommendations for the period from 1-1-12 through 12-31-14

3 YR BUY Performance 3 YR BUY/SELL Performance No. of Buys No. of Sells Ratio of Buys/Sells 3 YR Maximum Drawdown
Large Investment Banks 20.8% 3.5% 757 210 3.6x -13.5%
Mid-size and Small Investment Banks 19.3% 4.5% 207 19 10.7x -20.0%
Independent Research Firms 22.3% 7.2% 1411 1289 1.1x -16.5%

Source: Investars

Investars calculates the performance for buys and sells by estimating a return based on each buy and sell recommendation during the period, ignoring returns associated with hold recommendations.  Independents had the best overall buy/sell performance, followed by the mid-size and small investment banks and the bulge firms.

Bulge firms had the lowest maximum drawdowns for the period, which are the largest percentage losses recommended stocks would have experienced during the 3 year time horizon.


Independent research firms had the broadest coverage averaging over 1400 buy recommendations over the last year, but this reflected quantitatively derived stock recommendations rather than analyst coverage.

For independents, the number of sells almost equaled the number of buy recommendations.  For bulge bracket firms, buys outnumbered sells by almost four times and for smaller investment banks by nearly 11 times.  On average smaller investment banks made fewer than 20 sell recommendations compared to over 200 buy recommendations.

Top performing firms

The firm with the top performing buy recommendations for the three years ending 2014 was BWS Financial, followed by Leerink Swan, Northcoast Research, Zacks Investment Research and a firm which is confidential.  With the exception of Leerink Swan, the top performing firms were independents.

Firms with Top Performing Buy Recommendations for the period from 1-1-12 through 12-31-14

3 YR BUY Performance 3 YR BUY/SELL Performance No. of Buys No. of Sells Ratio of Buys/Sells 3 YR Maximum Drawdown
BWS Financial 33.5% 20.6% 31 5 6.2x -19.0%
Leerink Swann 32.9% -5.1% 180 2 90x -18.3%
[Private Firm]
30.7% 15.3% 4146 4443 0.9x -9.5%
Northcoast Research 30.6% 31.3% 60 8 7.5x -9.9%
Zacks Investment Research
29.7% 21.1% 1721 1447 1.2x -11.0%

Source: Investars

Northcoast Research and the private firm had the lowest risk profiles as measured by three year maximum drawdown.  BWS Financial, Leerink Swann and Northcoast Research recommendations are primarily driven by analysts whereas Zacks Investment Research and the private firm base their recommendations on quantitative models.


About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email:

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