What is equity research?
Equity research is a form of financial analysis that involves studying publicly traded companies and their stocks in order to provide insight and make investment recommendations to clients. Equity research analysts gather and analyze financial and non-financial data such as financial statements, industry trends and the competitive position in the market. The goal is to provide recommendations on whether to buy, hold, or sell a particular stock, and provide insight into a company’s future performance and potential risks. Equity research is often conducted by investment banks, brokerages or independent research firms. The reports are used by institutional and individual investors.
How do equity research firms work?
Equity research firms essentially conduct the equity research that has been outlined just above; provide insights and recommendations, and gather and evaluate various types of data to give the best advice possible. Equity research firms sell their ‘research’ or ‘recommendations’ and final reports to individual or institutional investors in the form of hedge funds, mutual funds or pension funds to assist with making more informed investment decisions. These firms may also offer investment banking, asset management, and sales and trading services to their clients.
How is equity research different from funds management?
Equity research and funds management both involve analysing individual stocks, often while considering industry and macroeconomic trends. Funds management focuses on managing investment portfolios and behalf of investors, with fund managers executing trades based on their analysis of individual securities and other factors. Equity researchers also undertake such analyses, however rather than managing investor capital, merely provide recommendations to retail and institutional investors on whether to buy, sell, or hold a particular stock. Thus, in a nutshell, fund managers make investment decision for their clients, while equity researchers advise their clients on those decisions. Given their role in managing investors’ entire portfolios, fund managers also tend to look at wider considerations such as asset allocation and diversification, while equity researchers tend to only look at individual stocks.
What does a role in equity research entail and what are recruiters looking for?
At the more junior analyst level of equity research, the focus is on preparing both qualitative and quantitative stock research, with this often involving both valuations and presentations of this information to more senior leaders. These leaders thereby look more at collating this information from analysts and preparing overall reports on individual equities, using their judgment to balance the different perspectives presented by analysts. Senior firm leaders also tend to interact more with clients, as they look to sell these reports to stockbrokers, investment banks, and funds management firms alongside everyday retail investors.
Thus, due to equity researchers providing information to both institutional and retail investor clients, their reports need to be highly accessible and based on minimal assumed financial knowledge. This therefore makes communication a skill highly valued by recruiters in the industry. As information needs to be comprehensible for different levels of financial acumen without losing its meaning and quality.
Further to communication, some other soft skills highly valued by recruiters include:
- Confidence
- Curiosity
- Perspective taking
- Creative thinking
- Decisiveness
What entry level opportunities are there in equity research?
Equity research is therefore a great career pathway for those interested in financial markets and valuations. While graduate roles in equity research are sparse and highly sought after, opportunities do exist at many of the bulge bracket investment banks such as Goldman Sachs and J.P. Morgan.
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