What Are the Different Types of Research Analysts?

Article Details
  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 19 April 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article

Research analysts can be found across various industries, including financial services. Industry participants might pursue one of a number of specialties, such as to provide research on the debt capital markets where bonds trade or the equity capital markets where stocks are issued. Research analysts could work on the buy side where analysis is reserved for other financial professionals or the sell side where reports might be issued to clients and the media.

Analysts are expected to earn some professional certification, such as the designation of chartered financial analyst, which is recognized across many countries. Depending on the level of industry experience attained, research analysts could fall into rankings between junior and senior levels. A more senior analyst could be named director of an entire research division, which could include analysis of an industry or regional market.

A sell-side analyst is typically employed by a brokerage firm or a brokerage division within a larger financial institution, such as an investment bank. Brokers buy and sell equity and debt securities, including stocks and bonds, on behalf of investors. Analysts offer perspective, guidance, and ratings on these financial securities to clients. Professionals on the sell side comb through the financial statements of corporations to assess the growth potential of that company and set profit and sales expectations. In addition to covering securities, research analysts could follow the investment potential in regional economies.

Ad

Buy-side analysts support the investment decisions of professional money managers. Instead of producing research reports for investor clients, these professionals typically examine market and economic conditions for internal purposes at a firm. Investment managers depend on the research muscle provided by buy-side analysts in order to make buy-and-sell decisions for investment portfolios. These decisions affect the types of profits generated by investment firms. Pension funds, hedge funds, and traditional money managers, including mutual funds, might all employ buy-side analysts to support investment decisions.

The precise details surrounding the coverage universe for research analysts depends largely on the type of employer and also the size of the company. Small investment firms with brokerage divisions might employ research analysts devoted to a single industry and who cover small, mid-sized, and large companies. Larger institutions might hire research analysts to cover subsets within an industry. For instance, one analyst might be dedicated to following software companies with a small market capitalization, or market cap, a measure of the size of a company, and another might provide research on large-cap hardware stocks.

Ad

Discuss this Article

Charred
Post 4

@nony - That's a good point. I believe that market conditions change so quickly, and in real time, that I think research analyst jobs would require the ability to sift through large quantities of data and make sense of it all.

Furthermore, I think that they would need to know how to use sophisticated computer software that would help them sift through that data and create statistical models to project which way the stock will go.

I can imagine that both a background in finance and perhaps some information technology wouldn’t hurt.

nony
Post 3

@allenJo - What’s interesting is to ask the question whether the stock picks of the buy side analysts do better than those of the sell side analysts?

I tend to think that the sell side analysts would issue more buy recommendations, while the buy side analysts would issue fewer buy recommendations.

Why is that? Because analysts on the sell side are trying to make as much money for their investors as possible, whereas I think the buy side analysts who work for the investment companies are more concerned with preservation of capital. That’s just my two cents.

allenJo
Post 2

@miriam98 - Yeah, I think the research analyst jobs carry a lot of weight. They can easily be wrong, and I think when the bubble burst, a lot of people blamed the analysts. They were a little too top heavy in their buy recommendations.

But I still defend their profession. They do it full time, spending 40 or even 60 hours a week combing through financial statements to come to a conclusion about which way the winds are blowing for a company and what recommendation to make.

That’s not easy; most of us would be forced to make investment decisions on a hunch were it not for the work of the analysts.

miriam98
Post 1

I guess then as an investor that I follow (or choose not to follow) the advice of the sell-side analysts. These are the financial analysts who will issue the buy, hold or sell ratings on a stock.

Their names are kinds of misleading; when I hear sell side I think that all they do is sell, but it just means that they interface with the public.

I believe that the majority of investors have typically followed the advice of analysts in their investment decisions, and this makes the job of the analysts very important. What is most damaging to the profession of the sell side analysts in my opinion is that they rarely if ever offered a sell recommendation on a stock.

This was especially true in the heyday of the Internet bubble; it has kind of changed a little bit for the better since then.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email