Choosing sector to cover
I am a senior analyst at a boutique LO w/ 6-7 years of experience and covering international equities. I started out as a generalist straight out of college and was lucky to take up Industrials and Materials sectors in year 2 and 3 as the firm was expanding the international equities business.
We recently added an analyst w/ years of generalist experience and my PM wants him to start taking over a sector sometime this year and told me that I should "think about" reducing my workload (i.e., essentially drop a sector).
Now the dilemma for me is that I love Materials and really feel that I've built up expertise over the sub-industry groups, including semiconductor materials, metals & mining, commodity chemicals, etc.... Also, I feel that there's a lot of secular growth in certain sector verticals like semiconductor and metals (esp. those tied to electrification).
However, Materials is significantly smaller vs. Industrials in the developed international market, especially down market cap range where I invest mainly (Industrials is ~23% of MSCI EAFE small vs. 9% for Materials). Also, because "Industrials" is such a diverse sector, it's almost like a portfolio within a portfolio.
I figured I'd reach out to the community here, hoping for some advices and thoughts in general regarding which sector I should drop.
Ah, the classic conundrum of choosing between passion and practicality in the equity research jungle! Based on the most helpful WSO content, here are some thoughts to help you swing to the best decision:
Passion vs. Market Size: You've got a real knack for Materials, and that's not something to toss aside like a banana peel. However, the size of the Industrials sector in the MSCI EAFE small-cap index is more than double that of Materials. This could mean a broader range of companies to cover and potentially more opportunities for impact and recognition.
Expertise and Growth: Your expertise in Materials, particularly in areas with secular growth like semiconductors and metals related to electrification, is a valuable asset. This expertise can be a significant advantage, especially if you foresee continued growth and investor interest in these sub-industries.
Diversification: Industrials being a diverse sector can indeed be like managing a mini-portfolio. This diversity can be a double-edged sword; it offers a variety of companies to analyze but can also be a lot to juggle, especially if you're looking to reduce your workload.
Future Opportunities: Consider where you see the most potential for your career growth. If you believe that your expertise in Materials will open more doors for you in the future, it might be worth focusing on that. On the flip side, if Industrials offers more headroom for advancement, it could be the smarter long-term play.
Sector Dynamics: Remember, sectors go in and out of favor. While Industrials might be larger now, Materials could gain prominence if the trends you mentioned (like electrification) continue to gain momentum.
Ultimately, it's a strategic decision that should balance your personal interests with market realities. If you're torn, perhaps there's a way to maintain a hand in both sectors, albeit with a reduced workload in one. After all, in the jungle of equity research, it's not just about survival, but thriving in the environment you choose!
Sources: How to pick your next sell-side research job, https://www.wallstreetoasis.com/forum/hedge-fund/best-industries-to-specialize-in?customgpt=1, How to pick your next sell-side research job, What sector is easiest/best to cover under a market neutral frame work?, https://www.wallstreetoasis.com/forum/equity-research/career-ladder-equity-research-vs-investment-banking-a-definitive-guide-part-3?customgpt=1
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