Whether buy-side or sell side research helps support investment decision-making is a matter of debate. Furthermore, it’s crucial for those in the markets to understand their differences because they’re meant for separate purposes and audiences.
Institutional investors, which include mutual funds, hedge funds, and asset managers, conduct buy-side research. An example of these analysts are those determined in deep, proprietary views to aid their firms’ financial commitment systems and optimize framework yields. Their research tends to be long-term in orientation and kept tight in the firm for competitive advantage reasons.
On the other hand, sell side research is produced by investment banks, brokerage firms, and others that sell investment products. Sell side analysts publish these reports and recommendations to a broader audience, institutional and individual investors. They typically want to drive trading activity and assist their firm’s sales and trading efforts with a shorter horizon.
In this blog, we will discuss these two types of research and compare their methodologies, objectives, and how they work together in the financial markets. Finally, I will cover how AlphaPro supports both buy- and sell side research and the content we provide to corporate and consulting clients looking to use equity research. Be involved in the markets, as they have disparate purposes and intended audiences.
Sell-Side vs. Buy-Side Research
What is Sell-Side Research?
Also known as Broker Research or Equity Research, Sell Side Research is a report produced by sell side firms for end investors, fund managers, and corporate professionals to help them better understand market dynamics and make wiser business and investment decisions.
Sell side research, which other people do, is external facing and aims to produce trading and commission activity for the firm conducting and publishing it. For brokers and banks, its primary purpose is to help drive revenue by increasing trading commissions, investment banking, supporting client relationships, creating market presence, and establishing a competitive edge.
What is Buy-Side Research?
The sort of research undertaken by the buy-side is conducted by institutional investors, such as mutual funds, pension funds, hedge funds, and asset management firms, which shall be consumed only by their firm. Buy-side research is proprietary and, therefore, is not public. In this regard, it tells the firm’s internal decision-making. It aims to produce returns for the firm’s portfolio, and these analysts care about long-term investment performance. They use their research to make strategic decisions about the decision to buy, hold, or sell an asset for it to yield optimal returns.
Sell-Side vs Buy-Side Research Methodologies
Sell side and buy-side analysts utilize distinct research approaches in their procedures since these two forms of study have different aims.
Typically, sell side analysts combine:
- Financial statement analysis, valuation models, and similar company analysis are all included in fundamental analysis.
- Technical analysis is the process of looking at past data to find trends and forecast changes in the market.
- To comprehend the dynamics of the market as a whole, it is necessary to analyze industry and market trends and macroeconomic variables that may impact markets.
- Statistical models and algorithmic trading are two examples of quantitative analysis.
Buy-side analysts often include:
- Essential Examination involves extensive due diligence and the creation of specialized valuation models based on the company’s investment strategy and risk tolerance.
- Examination of Portfolios evaluating the risks in a portfolio and projecting the potential effects of various events and market circumstances on portfolio performance.
- Analyses both quantitative and qualitative, combining qualitative elements like company governance, competitive positioning, and management quality with cutting-edge quantitative techniques to create models that guide investment decisions.
The main differences between the analyses sell-side vs buy-side firms perform are:
- Depth vs. Breadth: While sell-side analysts concentrate on practical, shorter-term insights pertinent to a wide range of clients, buy-side analysts often perform long-term, in-depth research customized to specific investment portfolios.
- Customized vs. General: Sell-side analysis is standardized to appeal to a broad audience, whereas buy-side analysis is tailored to the firm’s investment style and aims.
- Risk management: In this area, buy-side analysts concentrate more than sell-side analysts.
- Engagement with Companies and Experts: Due to their emphasis on longer-term investments, buy-side analysts typically have more regular and direct interactions with company executives and industry experts.
How Do Buy-Side and Sell-Side Financial Market Analysts Collaborate?
The work between the buy-side and sell-side analysts is very synergistic. Buy-side analysts use sell-side analysts’ research, insights, and trade recommendations to help inform their research and investment decisions. Consequently, these decisions will affect future sell-side research and build synergistic relationships based on efficient information flow and informed investment and trading.
Buy-side and sell-side analysts further collaborate through events organized by sell-side firms, such as industry conferences or visits with company management, to share buy-side analysts’ deeper insights into their research.
The two are in a synergistic relationship, which makes information flow and investment and trading activities better informed.
Regulatory Impact: Buy-Side vs Sell-Side Research
The MiFID II and the Global Research Analyst Settlement both bring significant changes to analysts’ interactions, already by default, with an increased emphasis on research independence and transparency.
Such regulations force the cleavage between research and investment banking. Research becomes more objective and unbiased, which makes it possible for firms to base their buy-side safely. For example, MiFID II compellingly makes buy-side firms pay for sell-side reports, compelling analysts to generate more meaningful and value-added research.
Beyond that, sell-side analysts must better describe how they did the research and with what assumptions; this increases transparency for buy-side analysts. As organizations increasingly adopt advanced technologies and data analytics, there has also been a demand to manage information effectively and for regulatory purposes.
Taken together, these regulatory changes have contributed to the overall quality, reliability, and transparency of the research, thereby enhancing the ability of the sell side and buy side to make informed investment decisions.
Importance and Value of Equity Research
Equity research is priceless in today’s fast-paced and sometimes volatile economic environment. Today, 90% of equity research flows to equity fund managers, who, as a Group, have the entitlements and resources to mine for insights. Equity Research is a critical weapon available for buy-side professionals to make sound, sense-based investments.
However, equity research benefits other customers than buy-side analysts. One beneficiary is consultants and corporate guys who can use some of the market insights for proactive strategies to gain a competitive edge over their peers.
We at AlphaPro realize the benefit of equity research and have Wall Street Insights® – the first and only equity research collection built expressly for the corporate user.
Our corporate clients can gain the industry depth of Wall Street’s top analysts on strategic planning, product decisions, competitive analysis, merger and acquisition assessments, and more through Wall Street Insights®. However, our consultant clients get to provide the best proposals and notch up the counter by increasing the quality and data foundation behind every piece of advice while growing the size of their organization.
AlphaPro Supports Both Buy-Side and Sell-Side Research
Buy and sell-side research help one another, but they fulfill different objectives for different people. One example is buy-side research produced for internal use, which then informs a firm’s investment decisions. Ultimately, they will shape the market landscape and the way analysts analyze something. While buy-side research analysts greatly appreciate the expert analysts’ perspectives delivered in sell-side research under the specific context of their firm, sell-side research analysts greatly appreciate the expert analysts’ perspectives as represented in buy-side research.
For buy-side analysts, including hedge fund managers, asset managers, private equity analysts, AlphaPro is a highly valuable tool. It is your single-stop shop for high-quality, comprehensive, fast market research with access to equity research from over 1,500 research providers, company documents, news, regulatory documents, and expert transcripts.
Our buy-side clients obtain access to the same research and already have entitlements to use our platform. However, by using our proprietary AI search technology and the massive universe of content we have within our platform, buy-side analysts are less on the hunt and able to look deep into the market and save time, freeing up time to explore the insights they would never discover.