Mutual Funds Value Small Cap Research Most


New York, NY – Integrity Research Associates recently discovered that 64% of U.S. mutual fund portfolio managers and analysts believe that small cap research was either Very Important or Critical to their Investment Process.  This compares to the 60% of PMs and analysts at hedge funds and 51% of the investment professionals at pension funds who felt the same way.  This data was collected from interviews with 141 portfolio managers and analysts at US mutual funds, hedge funds, and pension funds as part of Integrity Research’s upcoming US Small Cap ResearchFocus report.

Among the 141 buy-side PMs and analysts surveyed, all believed that external fundamental research holds at least some value in their small cap research process.  Overall 21% believed it to be Critical to the Investment Process; 31% Very Important; 37% Somewhat Important; 11% Use But Not Important; and 0 % No Value

External Small Cap Research

For the purposes of this ResearchFocus report, Integrity divided small cap research providers into four major types of providers: Bulge Bracket Investment Banks, Regional Investment Banks, Boutique Investment Banks, and Independent Research Providers.

Survey participants indicated that the most valued sources for small cap equity research were Regional Investment Banks followed by Bulge Bracket 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.

Reasons for Using External Small Cap Research

A buy-side investor may subscribe to external research for a number of reasons. Survey participants indicated that access to In-depth fundamental research was the most important reason for using external research providers. This was followed by Idea Generation; Broad Coverage of Small Cap Companies; Access to Analyst Financial Models and finally Access to Company Management.

Going a step farther, we asked participants to individually rate fourteen different parameters for the level of importance when considering an external small cap research firm. The top three most important parameters ranked were Quality of Analysts followed by Depth of Research Reports and Unique Company/ Industry Insights.  Ranked least important were Size of Coverage universe; Performance of Recommendations; and Custom Research Capabilities

When comparing responses across type of buy-side survey participants, hedge funds placed a significantly higher emphasis on Analytical Expertise/ Quality of Analysts. PMs and analysts  from mutual funds rated  Depth of Research Reports followed by Access to Financial Models as the most important factors. Pension fund placed nearly equal weight on Analytical Expertise/ Quality of Analysts and Unique Company Insights/ Industry Insights.

Outlook for Small Cap Research

In the past year research budgets have been slashed forcing many to decrease spending on external research.  However, a mere 8% indicated that they had discontinued using any specific provider of small cap equity research in the past 24 months. 

In addition, most of the 141 buy-side participants surveyed plan to either increase or keep the number of providers that they currently use.  Integrity’s survey revealed that in 2009 more respondents (21%) increased their usage of small cap research versus those who decreased usage (11%).  69% reported that usage stayed the same.  

Over the coming 12 months, 70% of buy-side investors surveyed say that their usage of small cap research is likely stay the same.  This compares to 26% of respondents who plan to increase their usage of external small cap research (either substantially or modestly) versus only 4% who plan to decrease their usage of external small cap research over the same time frame.

For more information on the exact publication date and the price of this upcoming ResearchFocus report on US Small Cap Research, please contact Matthew Bannister at 646.786.6851 or e-mail him at


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