Is sell-side coverage objective?
Hi, I'm on the VC side with little exposure to public markets or equity research. Heard a public markets investor tell me they aggregate coverage from different sell-side analysts and use that to give them direction.
Question for those of you in equity research:
1. How objective is your coverage? (my understanding coverage exists for marketing and not a critical analysis)
2. How do you decide on which companies to cover? (is this purely driven by front-office requirements, or is there an overarching strategy to have sufficient coverage within a given market?)
1) ER is all marketing at the end of the day with some objective analysis sprinkled in here and there.
2) Coverage is based on a few things, but I think its mostly about (a) buy side interest and (b) just covering the biggest names in your sector. The whole point is to get client interaction, so covering some small cap company no one cares about doesn’t benefit SS much.
Correct. Equity Research isn't meant to be a stock-pick (despite the "recommendations" component). It's a tool used to generate business for other lines of the company...i.e. does it help get an IB mandate if you can market the stock post IPO and generate liquidity, do you have access to the management team so a hedge fund is willing to trade through your brokerage to get access, etc. If there's no interest in the name, there's no reason to cover it.
Ignore my title I work in ER at a boutique. The commenters above refer to ER at BBs, which isn't respective of the entire industry. ER reports at BBs are largely rubbish and for market SS ER at boutiques think ISI (before EVR acquisition), TPH (before PWP acquisition), Cowen (Before TD), Berenberg, Wolfe, etc. actually publish quality research that people that invest in the public market actually read and take seriously.
Personally, I'd never take SS ER seriously. Just recently, an ER analyst at a BB that had a sell rating on a company magically changed his rating right as the IBD announced that they were working with that same company. I wonder why
Depends on the type of firm. Excluding the reputable boutiques who monetize only on client subscriptions,
1. How objective is your coverage? Not objective at all
2. How do you decide on which companies to cover? Combination of what the analyst wants to cover, what the firm pressures them to cover for revenue purposes (they gonna rate them "SELL" right? Sike), and what they must cover as a result of being on the IPO.
Real value add of SS comes from their access to management and conferences, not their analysis. The buyside makes up their own mind abt the stock because at the end of the day you also need an edge, hugging consensus views doesn't generate alpha
I don’t understand this question. Why would some notion of “objectivity” ever be the goal with research anywhere?
You add value through differentiated research and perspective, which naturally requires an opinion or subjective view. Nobody (except for a newcomer to the name) calls the guy who regurgitates the “house view” from IR.
I think it depends heavily on your analyst. I’d like to think that my team does a fair amount of fundamental research.
My lead analyst has had very successful careers as an entrepreneur and on the buy side. As a result, he is in his seat rn purely bc he loves it — he doesn’t care about appeasing corporates or driving banking revenues. Obviously we soften language, but I can say that 100% of the content we have published in the ~18 months I’ve been here has been solely our view.
As for the companies we cover; our “core” coverage is the companies that clients are most interested in. When we pick up coverage it’s either 1. Banking is driving it 2. Clients are asking us abt it…deal flow has been slow so it’s been mostly the second one since I started working.
Depends on the desk. It's pretty clear there are some desks where the MD is coasting into retirement and others that are just news aggregators.
Also depends on the industry, but Bernstein does good work in aggregate, in my view.
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