I’m an engineer pursuing an MBA at a top US university and have also completed CFA Level 3. I’m looking to break into investment management and trying to decide between Fixed Income (FI) and Equity research. Although this is not still set in stone, I would like to obtain a good clarity about pros and cons of working in each target area. I would like learned members to comment on aspects in each target area such as working style, analytical/numerical ability, career future, salary/pay, etc.
Being an engineer, I’m very strong in quant and FI naturally appeals to me due to its complexities in math. However, I want to consider all the aspects before focusing on this area.
Well it totally depends. Pretty much a matter of preference. Fixed income can be super lucrative if you do it right, but that tends to be a tad more difficult to be good at (something like picking the right CDS's in 2007, see: The Big Short). Equities are just inherently more popular and there are more equity "flavored" funds out there that range from several different strategies. If you are math based and want to follow a career in quant analysis, you could try and work for a quant equity fund (Citadel, 2Sigma, etc.) Totally depends on what you're looking for, both industries can be pursued in your case and both can be incredibly lucrative it just all depends on the fund and the size.
FI can be more stable than equity in terms of a career simply because of the employers. Think insurance companies and financial institutions, institutions that need safe and stable income. These guys have hw large majority in IG stuff with low to no default risk. Because of that, there’s not going to be years where they kill it and then go out and try to hire more people. And since they aren’t over staffed, they’re actually understaffed (at least at my company), then there won’t be as many firings during bad times. But equity sometimes has more interesting stories to uncover and create.
I'm sorry, equities are not "inherently more popular"... go look up the size of FI and equity markets. Second of all, fixed income requires more active management because there are constant different issues vs equity of apple is always equity of apple. equities are "more popular" with students because it is what people think of as "the stock market"
If I understood you correctly, you are referring to fundamental research which entails looking at company's financial statement as a key component of your analysis. If that's the case, you would be focusing on different things based on what part of the capital structure you will look at (equity: is there upside; debt: are you going to get your money back)
I wouldn't want to work in covering investment grade debt (like covering Apple / MSFT bonds, which are unlikely to default). However, high yield / distressed debt research can be as interesting as equity. Something you need to be comfortable in debt research is ability to read loan documents / covenants or familiarity with bankruptcy laws (if you do distressed).
The analytical ability involved in fundamental research is not rocket science math (like Black-scholes or modeling an interest rate random process), it's solid reasoning and superior insight. If you want to do quant, then I wouldn't have done an MBA. You would look at funds like 2sigma or AQR. In addition, I am sure hedge funds have quant strategies too, but having just an undergraduate engineering degree is unlikely to be that differentiating at hedge funds of the Citadel / Millenium caliber unless you have some STEM Olympiad experience too.
Just my take. I would love to hear industry veterans' thoughts on my understanding.
Previously, it was true that quantitative hedge funds would almost only hire people with PhDs but this is becoming less the case. As open source as exploded, it's become a lot easier for fresh undergrads to dive in. As long as you can understand the math, which if you have an undergrad math/engineering degree you can, you don't need a graduate degree to be a quant. If you go to 2sigma or AQR's websites, you'll see that they have tons of positions posted recruiting fresh STEM undergrads.
Curious to know if there is any helpful reading material or online courses that are available for credit research. The role I'll be in for this upcoming summer is pure fundamental credit research; I'll most likely be rotating between IG and HY within different industries. I know how to build financial models already (DCFs, Comps, LBOs); however, what else is out there to be better prepared? Can someone attach a typical credit report? Thank you in advance.
Difference between Equity Research and Research Fixed Income? (Originally Posted: 07/13/2017)
Im looking for updated opinions and thoughts, and also which will be the best experience for joining a Hedge Fund.
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you may have already seen this, but if not https://www.wallstreetoasis.com/forums/fixed-income-research-v-equity-r…
Fixed income research is a whole different beast. The difference between equity research and fixed income is like night and day. Fixed income research is going to be HEAVILY quantitative. Which would suit your background perfectly, because as an engineer you should be well versed in python which is the language everyone uses. In fixed income research you’ll do a lot of modeling that will be macro/econometric focused, so you need to be well versed in linear algebra/regression/time series analysis. Equity research is not going to be as mathematical, quite a bit more focused around understanding financial statements, industry, etc. Look at shops like Putnam, Eaton Vance, and Wilmington. Just keep in mind the fixed income research positions are highly coveted, but once you’re in you’re in for life.
I work in FI research and don't know of anyone who uses python or macro/economectric modeling, most of the modeling I see is largely similar to Equity modeling. We have a separate macro team which handles most of the macro forecasting that goes into our GDP forecasts etc so maybe thats different at other shops
I think he's referring to structured, rates, EM etc rather than IG & HY credit...
Correct, I am referring to structured/rates, not credit whether it be HY/IG. I’m on an IG credit desk myself, so I know that’s not the case.
just to add another pov, I do quantitative equity research. The biggest difference between fixed income research and equity research (from a quantitative perspective) is that there's a LOT more data on equities than there is for fixed income since there are far more stocks than there are fixed income products. Sorting through the vast amount of data that exists for equities, finding what is useful, and determining the optimal way of using the data is a very cool challenge. While fixed income is definitely an interesting area, it lacks many of the interesting data challenges that quantitative equity research provides. Of course if you are doing fundamental equity research, that's a whole different thing but with your background you have some flexibility in choosing what you want to do.
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