Hi,
I'm currently a senior in college and had some questions about Asset Management. It seems that many buy-side equity research roles are similar to the sell-side in that you continue to cover a universe of stocks in your industry. However, it also seems that some firms do not have analysts that cover a universe of stocks in each industry, but rather screen for ideas and then diligence these potential investments on a case by case basis.
It seems like screening for ideas to find potential new investments is more interesting than just covering a universe of companies and updating the model for any new news that comes out. Can anyone offer their thoughts or experiences on the difference between the two types of research?
Thanks
It really varies by firm. Some firms use an industry coverage model, i.e, Franklin Templeton, Trowe, Dodge & Cox, Brandes, etc. Other firms, particularly those with more of an international bent, use a regional coverage model, i.e. Harris Associates. The industry vs. regional coverage is usually core to the firm's investment process, so you should be aware of how they divvy it up.
There are still plenty of mundane tasks to go around under either model. I've worked under both models at different firms and each model has pros/cons.
The industry-driven model allows you to develop expertise and deeply understand the trends of an industry. It also makes your life a hell of a lot easier after a few years. The geographic model allows you greater flexibility as you can find interesting companies across industries. However, some industries are inherently difficult to understand, i.e. pharma, technology, so it's difficult to look at companies in these industries.
Thanks for your thoughts. Out of curiosity, do you know if firms with an industry coverage model are similar to the sell-side in constantly covering a certain number of companies, or is it more just screening for ideas in the industry you cover and not as much model updating each quarter?
It depends on what the asset class and benchmark are. For example if your benchmark is the S&P 500, someone on the team would need to be covering AAPL, GE, XOM, etc even if they are not in the portfolio because those names make up such a large % of the benchmark. Whereas if your benchmark is the Russell 2000, you would tend to focus on researching what comes out of your screen (what you don't own can't hurt you as much).
So if your benchmark is the S&P 500 would it be more sector/industry weighting rather than a bottom-up approach to constructing the portfolio?
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