New York – On an increasing basis questions are being asked about the direction of equity research in coming months. While the outlook is nasty for the overall industry, there are opportunities and niches that will do very well. The view from 30,000 feet is that the sell-side model will be getting much leaner, with a smaller number of analysts covering more stocks.
Classical fundamental analysts can cover between 10 and 15 stocks effectively. If they end up covering 50 stocks, for example, they will be providing a) inadequate coverage or, b) utilizing third party services to fill in the information gaps. We suspect the latter will continue to gain acceptance. As such, opportunities will exist for third party research providers which have particular abilities in these areas.
Beyond looking at the overall economy, typical fundamental research analysts look to a number of factors to help them assess the quality of individual securities, including, but not limited to, the following factors:
|
Analysis |
Third Party Sources |
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|
Demand |
Macro and microeconomic analysis |
Decision Economics, Dragonomics, Informa, Trend Macrolytics, RGE Monitor, Gavekal |
|
Channel Checking |
Verbatim Advisory, Merchant Forecast, Farmhouse, Retail Intelligence Group, OTA – OTR |
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Market Research |
Pannel Intelligence, NPD Group |
|
|
Patent analysis |
1790 Analytics, Litigation Notes, The Patent Board |
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|
Production |
Supply chain analysis |
Verbatim Advisory, Merchant Forecast, Farmhouse, Retail Intelligence Group, OTA – OTR |
|
Competition |
Competing products |
Competitive Analysis Technologies, International Data Corp |
|
People |
Management |
Management CV, Liberum Research |
|
Governance |
The Corporate Library, Riskmetrics, Governance Metrics, Glass Lewis, Audit Analytics |
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|
Insider Activity |
3D Analytics, Insider Insights, Muzea Insider |
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|
Financials |
Profitability |
Numerous sources |
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Cash Flow |
McLean Capital Management, StockDiagnostics |
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Economic Value Added |
Rochdale, MatrixUSA, shareholder Value Management |
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|
Multifactor Models |
Columbine Capital Services, Ativo Research, Quantitative Research Group |
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Regulation |
Policy analysis |
Cypress Advisory, Washington Analysis, |
|
Regulatory |
Disclosure Insight, Audit Analytics |
The table breaks down some of the major sell-side research elements that may be sourced from third party research providers. The third column is a list of competent providers in these areas—though one should not conclude that these are necessarily the best research providers. We would need to engage in much deeper analysis than can be accomplished in this blog to list the best of the best here. Indeed, Integrity’s ResearchFocus is dedicated to finding the key players within specific methodological disciplines, industries or sectors.
One major third party resource we have not covered in the above table is the expert networks. Expert networks can assist in any of the above categories, by finding qualified experts to confer on any number of topics. Rather than insert them into each category, we focused on firms that specialize in these areas.
1 Comment
The coverage points required for a comprehensive equity research are very correctly mentioned but in terms of providers the role of KPO’s (Knowledge process outsourcing companies) such as SG Analytics has not been mentioned. A large number of Investment research firms outsource the equity research to these firms and this is a fast growing industry.