Reflections on the WSJ Analyst Awards


The Wall Street Journal‘s Best on the Street Analysts Survey, published last week, graphically illustrates the long tail of investment research.  Awards were given to over 60 research firms, and the most awards garnered by any firm was 9 by Goldman Sachs.  Talent (or luck) is distributed broadly and there is no go-to firm for research, at least by the WSJ’s metrics.

This is an important caveat, especially for institutional investors.  The survey measures the performance of BUY and SELL recommendations, which generally ranks low on the list of attributes that are important to institutional investors.  However, recommendations are valuable for retail investors, so it not surprising to see retail-oriented providers such as S&P Capital IQ, Morningstar, and Argus garnering multiple awards.

In the past, the WSJ has ranked firms by the percentage of analysts receiving awards.  Since they neglected to do this, we have done it below.

This data raises the question of whether independent firms do a better job, at least on recommendations, than larger brokers.  Although  independents as a group have an average ratio of 1 award for every 4 analysts (compared to 1.2 awards per 10 analysts for investment banks), this doesn’t necessarily mean that performance is better with IRPs.  Smaller firms have higher ratios when they garner awards, and independents tend to be small.

Similarly, the fact that IRPs represent 30% of the awards is difficult to interpret, since it depends on how extensive FactSet’s coverage is of independents.  If they are not highly represented in the database, then it is a respectable showing.  30% is significantly higher than the portion of research dollars generally allocated to independents, which tends to be in the 15-20% range.

This raises the question of where the big boys, who are paid the big bucks, rank.  Pretty low and some are missing altogether (Citi, Credit Suisse, Deutsche).  Goldman does best with 9 awards (14% of total analysts included), followed by BofA / Merrill with 7 awards (11%) and JP Morgan Chase with 5 awards (7%).  Barclays, UBS and Morgan Stanley have the worst ratios (2-3%) among firms that received awards.

Granted, performance of BUY/SELL recommendations is not the highest priority for institutional investors, but you would think that given their resources, and the large payments they receive, that bulge firm research would do better.  Viewed through the lens of the WSJ rankings, there is a big disparity between the payments made for research and the performance of that research.  This reinforces the belief that the large investment banks and broker-dealers are being paid for other things.  Certainly not performance, and perhaps not even related to research at all.



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