According to data provided by UK-based research performance measurement firm Invisage, 37 sell-side research providers actually outperformed the US equity markets over the past three months as the COVID-19 pandemic prompted widespread lockdowns and roiled the financial markets.
Invisage Analysis
Invisage tracked the performance of all new BUY/HOLD/SELL ratings from more than 100 sell-side research firms between February 12, 2020 to May 12, 2020. During that period, the S&P 500 fell 15.1%. The table below shows the performance of the top 15 ranked firms that issued at least 10 new recommendations during the past three months, as well as the performance for eight bulge bracket banks that also fit these criteria. Based on this data, 37 sell-side firms outperformed the S&P 500 over this time frame, while five providers’ ratings actually registered positive performances.
The top three research providers over the last three months that issued at least ten new recommendations include H.C. Wainwright whose new recommendations recorded an 11.76% gain; Bernstein Research who posted a 9.18% increase; and, Chardan Capital whose new recommendations rose 7.64%. It is extremely interesting to note that over the past three months, H.C. Wainwright and Chardan Capital issued no new sell recommendations, while Bernstein issued 1 new sell recommendation.
Five of the eight bulge bracket investment banks tracked in this analysis also outperformed the S&P 500 index over this time frame, including Goldman Sachs, UBS, Bank of America Merrill Lynch, Barclays, and Morgan Stanley. What is particularly interesting about the performance of these firms is the fact that they each issued a significant number of negative new ratings during this period. Almost 18% of Goldman Sach’s new ratings were negative over the past three months; 6.1% of UBS’s ratings were negative; 24.2% of BofA’s ratings were negative; 13.6% of Barclays new ratings were negative; and, 12.3% of Morgan Stanley’s new recommendations were negative.
Our Take
The data provided by Invisage shows a very interesting picture. During the last three months when the COVID-19 pandemic has caused significant market volatility, a number of sell-side research providers have been able to provide their clients with new stock recommendations that have proven to outperform the overall market. This may be one reason the buy-side has felt positive about the research insight they have received from the sell-side over the past few months.
It is also interesting that a number of large investment banks have issued a relatively significant percentage of negative ratings. Traditionally, sell-side investment banks have kept the percentage of SELL recommendations to less than 10% of their overall coverage. However, over the past three months, a number of bulge bracket banks have exceeded this threshold reflecting the bearish sentiment many large banks currently hold about the markets.
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