Are you thinking you might, maybe, like to work in equity research? Even after reading our existing content on what the job of an equity researcher involves, do you still have some unanswered questions?
Fortunately, Bloomberg has interviewed some senior equity researchers who have provided a few insights into what their jobs are about. This is what you need to know.
It’s very hard for clients to make money from research that identifies a single stock, said the researchers. Ever since the crisis began in 2007, it’s been all about pointing out big macroeconomic issues.
“It’s a heck of a lot harder to make money on a stock- specific basis in the short term,” Stephen Penwell, director of North American equity research at Morgan Stanley told Bloomberg. “You’ve got to identify secular trends.”
‘Analysts today are more focused on churning out exhaustive studies of trends and industries, with colleagues on several continents providing insights,’ says Bloomberg.
“We’re in the business of connecting the dots,” says David Bleustein, head of US equities research at UBS. “We can tell you how a longshoremen’s strike in Australia is likely to affect a US coal company.”
Bloomberg points to a study of 14,500 consumers in Brazil, Russia, and other emerging markets economies conducted earlier this year by Credit Suisse and market research company Nielsen. This looked at everything from perfume purchases to credit card debt.
“You’ve got to be an investigator now,” Stefano Natella, Credit Suisse’s co-head of securities research and analytics, said. “We’re looking for global themes that are disruptive and cut across economic sectors.
“You want to identify the theme that can make money for clients and then you want to identify the companies that are most leveraged to that theme,” says Kash Rangan, a Bank of America application and systems software analyst
Rod Lache, the top-ranked auto analyst at Deutsche told Bloomberg it’s all about being contrarian now: “We’re trying to be contrarian,” he told Bloomberg. “That’s how you make money in this part of the market.”
Every now and then, someone says equity research is dead: that it’s a cost and that cost constrained clients won’t pay. This isn’t true.
“The decline of Wall Street research is vastly overblown,” said Noelle Grainger, head of Americas equity research at JPMorgan. “There continues to be a demand for high-quality talent. Investors still want to know what is going on in an industry.”
On the other hand, however, equity commissions are falling, there’s more passive investing, and equity researchers are getting paid less. In the US, compensation is down 20% since 2007.
And as we’ve noted before, analysts have had had new duties added to their lives – most notably, taking investors to see clients. Equity research has become about marketing your research during the day and writing it in the evening, one researcher complained to us.