Robust ideas that fuel stock market trades
Equity researchers, or analysts, are often the talking heads of the investment banks. When a bank offers an opinion on a particular company or stock in the press, it’s usually the specialist analyst covering that sector who gives a view.
Researchers spend their time focusing on large-cap companies, generating investment ideas for clients on the ‘buy-side’ (see Fund Management on p38). While they spend time producing reports, poring through company financials and giving occasional views to the media, much of their job is spent doing more fundamental research that will set them apart from their competitors.
They’ll speak to company CEOs, CFOs and investors to get an idea of both sector sentiment and the specific prospects of a company, as well as creating complex financial models to predict the earning potential of particular firms.
The idea is to encourage big investors to then trade particular stocks through the sales & trading teams of the bank the analyst works for. Most cover large companies, which create the greatest investor appetite, but smaller investment banks also cover attractive mid-sized firms. There can be up to 25 analysts covering the same stock, so focusing on more niche companies can give smaller banks an edge.
Roles and career paths
Equity research is much less hierarchical than other areas of investment banking; teams are small and it’s more about the ideas you generate (and their performance) than your job title.
Researchers focus on industry sectors, such as technology or financials, and then a specialism within that – say, hardware or banks – and each sector team will cover around 15 companies. Initially, you will be given the role of associate, of which there are two to three on any team. They cover a few stocks within the sector team, and do a lot of financial modelling, but it’s the senior analysts – namely those with their names on the report – who get the credit.
Then, it’s a case of gaining the respect of the industry and your peers by making both correct and original calls. Top-ranked equity research teams can bring in a lot of business to banks’ trading desks, and the best analysts are more likely to be headhunted by another investment bank, or a hedge fund or fund manager.
Banks expect research candidates to come armed with the same mathematical prowess as those entering other front-office roles, but you need more. “A good research analyst combines strong quantitative and analytical acumen with an ability to see and tell the ‘story’ reflected in a company’s numbers,” says Lisa Thomas, managing director co-head of Americas equity research, Nomura. “Their ability to ‘get into the ‘weeds’ is highly valued by clients, whether it is applied to a company’s financial statements, industry data and trends or is focused on some other element of company performance or
Not only must you be able to assimilate complex data points and translate them into clear themes for investors, you need to have great communication skills to liaise with various parties (investor relations professionals and portfolio managers, for instance) in order to develop “a broad mosaic view of the company’s prospects for future performance”, says Thomas.
Analysts need “independent, commercial and actionable ideas to be combined with robust analysis, conviction and integrity”, says Xavier Gunner, head of developed Europe equity research, HSBC.
This is an extract from our Careers in Financial Markets graduate careers guide. Download the full book here.