The Bull and Bear Scenario for the U.S. Recovery


New York, NY – According to a comprehensive study conducted last year by Integrity Research Associates, 44% of all buy-side investors use “investment strategy” research as a part of their investment process.  On Thursday, October 1, 2009, Integrity Research Associates and UBS are co-sponsoring a lunch and panel discussion exclusively for institutional investors highlighting the views and recommendations of at least 3 of the 37 independent investment strategists in the Integrity database.  

Jeff Palma, UBS Managing Director and head of Global Equity Strategy will moderate this panel discussion focused on the bull and bear scenarios for the fledgling U.S. recovery.  The strategists participating in this panel include Keith McCullough of ResearchEdge, Connie Everson of Capital Market Outlook Group, and Douglas Peta of Qualitative Associates.

Institutional investors interested in attending the October 1st Integrity / UBS lunch should contact either Matthew Bannister or James Kempski at Integrity Research Associates to RSVP. Attendance will be limited.

Matthew Bannister

James Kempski

What are Strategists?

Based on Integrity’s taxonomy, investment strategy firms provide portfolio-level recommendations, versus security-level recommendations. Consequently, strategists provide asset, sector, or geographic allocation recommendations; thematic investment research; or analysis of the major factors driving securities markets.

Growth in Number of Suppliers

Since 1980, the number of investment strategy providers has been increasing steadily.  According to data collected by Integrity, the fastest growth seen in the Investment Strategy segment has taken place since 2000, when the number of firms has increased by 75%, from 20 to 37.   It must be noted that there is a survivorship bias in this analysis, since we do not include strategy firms which may have gone out of business since their inception. 

The team at Integrity expects that the recent growth in this industry is likely to continue into the future as more sell-side analysts decide to branch out and start their own firms, or as existing firms decide to offer investment strategy research. New firms are entering the business all the time. Some of the most recent examples of new entrants into the space include ResearchEdge and Strategas Research Partners.

Use of Strategy Research

In the second quarter of 2008, Integrity conducted a survey of 181 money managers to gain insights into how the buy side views the investment strategy space as well as the providers within it.  The survey included respondents from the United States, Europe, and Asia and reveals how independent investment strategists are used by hedge funds and mutual funds within these regions. Respondents who use investment strategy research were evenly divided between hedge funds and long only managers. The survey also examined differences in usage between larger investment firms and smaller firms.

Forty-four percent (44%) of the respondents to Integrity’s buy-side survey use independent investment strategy research. The broad usage of investment strategy research reflects its appeal to a variety of different investment styles and approaches. Because investment strategy focuses on portfolio level advice, many investors view investment strategy as a complement to their investment specialties. It is not uncommon for investors to use investment strategy advice at the sector level, supplementing it with their own security level analysis.

Overall, mutual funds tend to use investment strategy research more than hedge funds. Forty-nine percent (49%) of the mutual funds surveyed said they use investment strategy research. Fifty percent (50%) of the small funds surveyed use a strategist, while only 45% of the larger funds use one. Interestingly, there was no difference in the usage between large and small hedge funds ; 41% of the respondents for both categories use a strategist.

Mutual funds in the United States use by far the most investment strategy research. Sixty-seven percent (67%) of U.S. mutual funds responded affirmatively when asked if they currently retained a strategist. This percentage was driven by the large mutual funds; with 88% of large U.S. mutual funds surveyed using investment strategy research, the highest percentage in the survey. Asian mutual funds were the next largest with 35% of total usage.

Nearly the same percentage of European and American hedge funds use investment strategy research (47% for the US and 48% for Europe), with Asian hedge funds trailing by a large margin (11%). In Europe, usage of investment strategy research is driven by small hedge funds with 63% of these participants indicating they use this research. One interesting takeaway is that in both the United States and Asia, mutual funds are more frequent users of investment strategy research than hedge funds. However in Europe, this trend is reversed due in large part to the usage by the smaller European-based hedge funds. The high proportion of macro hedge funds in Europe may help to explain this phenomenon.

Macro hedge funds are a natural user of investment strategy research and have recently been gaining in popularity. Since 1990, assets under management for macro hedge funds have grown from well under $50 billion to just under $150 billion in the second quarter of 2006.

Hedge Funds Review cited macro hedge funds as the second most popular for inflows in the first quarter of 2008. The article states that around $3.82 billion went into the strategy during the quarter, second only to event driven funds. Macro strategists also enjoyed the third highest growth rate in the quarter, with a 3.15% bump. Short bias and convertible arbitrage ranked ahead of macro during this period.

As these funds grow in the future, we expect that investment strategy research providers should benefit as these hedge funds consume more external research. In addition, we suspect that as macro strategy funds gain in popularity, investment strategy research will become more attractive to investors as a way to contribute excess return to an investment portfolio.

The Market Size

While investment strategists make up less than 25% of the market in terms of the number of firms, they are the largest based on spending, comprising 44% of the total amount spent on economic research ($300 million compared to $677.7 million). General macroeconomic firms, while the largest in number, are the second largest in expenditures, representing nearly 60% of the providers, but only 35% of the spend. This clearly illustrates the higher value that institutional investors place on investment strategy research compared to general macroeconomic analysis.


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