Securities research

Investment banksSecurities research is a discipline within the financial services industry. Securities research professionals are known most generally as 'analysts,' 'research analysts,' or 'securities analysts;' all the foregoing terms are synonymous. Research analysts produce research reports and typically issue a recommendation: buy ('overweight'), hold, or sell ('underweight'); see target price. These reports can be accessed from a number of sources, and brokerages will often offer the reports free to their customers. Research can be categorized by the security type, as well as by whether it is buy-side research or sell-side research; analysts further focus on particular industries. Although usually associated with fundamental analysis, research also focuses on technical analysis, and reports will often include both. Securities research is a discipline within the financial services industry. Securities research professionals are known most generally as 'analysts,' 'research analysts,' or 'securities analysts;' all the foregoing terms are synonymous. Research analysts produce research reports and typically issue a recommendation: buy ('overweight'), hold, or sell ('underweight'); see target price. These reports can be accessed from a number of sources, and brokerages will often offer the reports free to their customers. Research can be categorized by the security type, as well as by whether it is buy-side research or sell-side research; analysts further focus on particular industries. Although usually associated with fundamental analysis, research also focuses on technical analysis, and reports will often include both. Securities 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); there are various other financial instruments. There are some analysts who cover all of the securities of a particular issuer, stocks and bonds alike. Securities 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. Analysts will regularly attend quarterly earnings conference calls; see also earnings guidance. 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. Research can be further categorized as buy-side research or sell-side research. Sell-side research is conducted by sell-side analysts at investment banks and independent equity research boutiques, and is sold to buy-side investors. Buy-side research, however, is usually not published as it created for internal use at an asset manager or hedge fund. Sell-side research is offered as part of a broad set of financial services including broking and corporate finance. 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. Credit rating agencies such as Moody's, Fitch, and S&P provide a similar service for bond securities. There are also a few retail investor firms such as Morningstar, SEENSCO, Valueline, and Zacks Investment Research. Entrance into the profession, which is generally very well paid and prestigious, is highly competitive. Those who enter the profession at the junior level, typically have an undergraduate degree from a leading college or university and one to a few years of experience in some other discipline of finance or (lacking such experience) an MBA or other relevant advanced degree. Those who enter the field in a junior capacity, can progress to a senior capacity in a fairly brief period of time (two to four years) if they prove themselves talented; often such advancement is greatly aided by earning a Chartered Financial Analyst charter (which requires passing of three examinations). Many securities analysts have directly entered the profession at a more senior level; such persons typically have an MBA or other relevant advanced degree and a number of years of progressively responsible experience either in another finance profession, or in the industry which they will be covering as an analyst. Securities analysts are generally employed in one of three capacities: sell-side analysts (who work for a broker-dealer and indirectly for broker-dealer's trading customers), buy-side analysts (who work for institutional investors, such as hedge funds, mutual funds, pension funds, proprietary trading operations of banks and brokers, endowments, and insurance companies), and independent analysts, who work for firms which sell research to sell-side and/or buy-side firms, but who do not themselves engage in securities transactions.