Sell-Side vs Buy-Side Equity Research
Sell-side equity research
Sell-side equity research analysts are typically part of an investment bank and focus on a universe of stocks within one or two industries in order to provide insightful investment ideas and recommendations:
- Directly to institutional investors;
- Directly to the investment bank’s salesforce and traders, who in turn communicate those ideas with institutional investors;
- To the finance community at large through financial data service providers such as Capital IQ, Factset, Thomson and Bloomberg, who resell the data. Notable end users are investment banks M&A and advisory services groups, which use sell-side equity research to help forecast company performance in presentations and pitchbooks.
Sell side equity research analysts communicate formally through research reports and notes that place buy, sell and hold ratings on companies they cover as well as through less formal direct phone, email and in-person communication with institutional investors.
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The future of sell-side research is less certain than ever: Institutional investors typically pay for sell-side research through “soft dollar” arrangements that lump research fees directly into trade commission fees investment banks charge the buy side. However, regulations in Europe starting in 2017 are forcing buy-side investors to unbundle the research product from trading fees and explicitly pay for research. As a result, the value of sell-side research has been under the microscope, and it’s not looking good. The change is predicted to significantly curtail the usage of sell-side research by the buy side.
Buy-side equity research
Buy-side equity research analysts, on the other hand, analyze companies in order to make an actual investment in line with their firm’s investment strategy and portfolio. Also unlike sell-side research, buy-side research is not published. Buy-side analysts work for a variety of investment funds:
- Mutual funds
- Hedge funds
- Private equity
- Other (insurance, endowment and pension funds)
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