3 Reasons to Take a Look at More Specialized Firms

In our previous two blog posts, we looked at both the analysts voted by investors as the best in their respective sectors and also the “rising stars” in each sector. Alongside the fact that both lists are full of analysts who provide best in class service to their clients, the other commonality is that the analysts listed are with few exceptions from a concentrated group of the largest sell side firms. In this blog post we take a slightly different approach and look at the highly ranked analysts at the more specialized firms.

One of the more positive predictions put forward regarding the introduction of the upcoming MiFID II regulations is that it will create a democratization of the consumption of research, leading to regional and specialized firms experiencing something of a renaissance. The bundled pricing model has historically made it difficult for these firms to compete with the larger full service brokers but investors will now have more incentive to consume research from any provider that helps them generate alpha, rather than being tied to the bulge-bracket firms they pay trading commission to.

For the IR teams that have historically focused their energy on building relationships with analysts from the bulge bracket firms, here are a few reasons to take a look at some of the more specialized firms:

For the IR teams that have historically focused their energy on building relationships with analysts from the bulge bracket firms, here are a few reasons to take a look at some of the more specialized firms:

1. As highlighted above, the introduction of MiFID II regulations will result in an increase in the amount of research investors consume from specialist providersand the leading analysts at these firms will as a result see an increase in the influence they have with investors.
2. Many niche asset managers (and even a number of large asset managers) are facing the very real prospect of being priced out of consuming research services from the bulge bracket firms due to the high costs proposed. They are therefore actively looking to build relationships with specialist research providers. Building relationships with these specialist providers is a good way for IR teams to get exposure to a focused group of investors that in the future are likely to fly more under the radar.
3. It is no secret that one of the ramifications of MiFID II is that there is likely to be less overall research produced and that this will impact the level of coverage that corporates receive. For the IR teams who have to deal with this new reality, specialist providers should be seen as an opportunity to ensure they are covered by firms with the potential to increase their share of the market.

So, with that said, we have again leveraged the Extel 2017 survey data and here is a list of the most highly rated analysts from single country, smaller regional brokers or specialist firms that we believe are well positioned to thrive in this new environment.