Equity research aims to provide objective and deep insights through analysing a company or sector. Companies can then use this information to guide investment decisions and M&A transactions. Today, many equity research companies provide these research and analysis services to help clients manage their wealth and assets better.
Such research happens on both the buy-side and sell-side. On the former side lie senior analysts working for client companies. Meanwhile, on the latter side, equity research comprises analysts and investment bankers.
These teams study groups of stocks and track market fluctuations caused by and impacting the stocks. They choose stocks based on industry and eventually become experts in these domains. They then produce reports to clients, explaining whether they should buy, sell or hold stocks.
Are equity research and investment banking the same?
While investment bankers help clients with M&A deals and issue new securities into the market, equity research analysts provide the data backing up such recommendations. Therefore, while the two work in cognisance, they are not exactly the same.
Understanding buy and sell-side equity analysts can further help to distinguish between investment banking and equity research.
Buy-side analysts include hedge funds, asset managers and institutional investors, focusing on expanding investment opportunities, increasing assets and raising capital. Thus, the researchers and analysts study and compile financial research on various companies.
The goal through such compilation is to mitigate and minimise risks associated with future investments. They examine and analyse companies to ensure that any investments align with the institution’s strategy and mission. Therefore, they must also track current affairs and build financial models to understand the outcomes of various investments.
Unlike the sell-side equity research reports, the buy-side reports are not available for public consumption. One of the main priorities of buy-side reports is risk analysis in new business opportunities. Producing high-quality reports and ensuring effective communication are, therefore, staples of buy-side equity research analysts.
A sell-side analyst sells opportunities or assets. Thus, they are usually investment bankers who study capital markets to provide sound investment guidance and recommendations. They help the buy-side decide which investments are worth it with data-backed solutions and comprehensive, understandable reports.
While the buy-side may focus on specific stocks or companies, sell-side researchers provide models and reports that can simulate stock market activity and give potential investors an idea of what to expect. Therefore, sell-side analysts are also proficient in financial modelling since they need to use models to assess risk before providing analysis reports that influence a company’s value.
Once they are sure of their reports, they meet with buy-side analysts in a finance data room to complete the due diligence and present the report.
Equity research companies often have both buy-side and sell-side analysts to maximise a client’s growth. Together, the two sides can ensure better investing and promote a healthy understanding of the markets. Today, individuals or companies using equity research get customised solutions that enable a clear picture of their portfolio and relationship with the stock market. Therefore, equity research and analysis is indispensable today.
To know more about keep reading Scary Pictures.