Introduction to equity research

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Equities research is a discipline within the financial services industry. Equities research professionals are known most generally as “analysts,” “research analysts,” or “Equities analysts;” all the foregoing terms are synonymous. Equities analysts are commonly divided between the two basic kinds of securities: equity analysts (researching stocks and their issuers) and fixed income analysts (researching bond issuers). However, there are some analysts who cover all of the Equities of a particular issuer, stocks and bonds alike.

Equities analysts are usually further subdivided by industry specialization (or sectors) — among the industries with the most analyst coverage are biotechnology, financial services, energy, and computer hardware, software and services. Fixed income analysts are also often subdivided by asset class—among the fixed income asset classes with the most analyst coverage are convertible bonds, high yield bonds (see high-yield debt), and distressed bonds (see distressed securities). Although technically not securities, syndicated bank loans typically fall within the domain of fixed income analysts, and are covered, as if they were bonds, by reference to the industry of their borrowers or asset class in which their credit quality would place them.

Equities include equities, bonds, and various other financial instruments, and can be categorized by the security type or whether they are buy-side research or sell-side research. Equity research is conducted by sell-side analysts at investment banks and independent equity research boutiques. On the buy-side, investors also perform buy-side research; however, this is often not published and is inconsistent. Professional researchers focus on particular industries and regularly attend quarterly earnings conference calls. Sell-side research is offered as part of a broad set of financial services including broking and corporate finance. Sell-side research is very expensive for retail investors to obtain. New regulation in Europe, Markets in Financial Instruments Directive II (MiFID II), is set to change how research is bought. Research must be “unbundled” from execution costs and priced by the research provider. It has typically been accessed by institutional investors through Thomson Reuters subscription services or Bloomberg terminals but marketplaces like Research Exchange Ltd have emerged where individual research reports or subscriptions can be purchased.

Independent equity research has largely sprung into existence as a result of scandals such as Enron, Lernout & Hauspie and Worldcom where investment banks wrote positive research despite deteriorating fundamentals or fraudulent management.


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