Best Sectors
I am deciding between financials and industrials for my summer internship opportunity in equity research. With this said, what path would be most transferrable in terms of modeling etc. for another industry? Thanks!
Currently in ER in a different sector than those. But for me industrials provides a better transition to another sector vs financials. In financials you will be looking at bank specific ratios, NOL, P/B, capital rations, etc. Industrials is more like other sector modeling and in addition you tend to develop a more macro view, looking at PMIs, growth, capex spend, etc. In industrials you will also learn about different businesses, given the different parts of businesses in industrial companies. Not that financials is terrible and you certainly will learn the modeling, but I think Industrials is much more interesting and you will be able to transfer to another sector easier - but not a huge deal if you’d like to transfer. I’ve spoken to people who cover financials and once they start there it is harder to exit for another sector.
I would note I think this goes both ways - financials makes it harder to transfer into another sector but transferring from most other sectors into financials is also difficult for the same reasons. If you know you are interested in financials it will make your life much easier to start there. I would note healthcare is similar in this vein - very different skillset so hard to get in but also a very niche skillset so not necessarily super transferable.
If your goal is purely transferability, stick to industrials.
Financials only apply to Financials and even then, you're going to find it extremely difficult to move within Financials. For example, if you cover regional banks, your skillset will be marginally useful for covering broker-dealers / asset managers, close to useless for things like exchanges, and completely useless for covering any kind of insurance. These sectors all have very sector-specific terminology and accounting. Even covering life insurance doesn't make you a shoe-in for P&C insurance since the business models are so different beyond the generalization of underwriting specific risks for a large population.
On the other hand, if you cover industrials where your models more or less follow the same IS / BS / CF template with drivers applicable to every sector besides HC/FIG/TMT, you'll find your skillset to be way more transferable.
While it's probably a bit abstract given you're only about to go onto your first internship, something that I've found illustrative is thinking about something as simple as interest expense. For normal companies, it's just that, an expense. For banks, its most analogous to COGs since they're in the business of 'selling money' for lack of a better phrase.
Also, if you do Financials, your modeling methodologies and experiences will be extremely specialized. If banks, you'll find it very tough in your interviews to quickly think through EV/EBITDA valuations and evaluating capital structures for normal companies. If life insurance, you'll care about things like TBV ex-AOCI whereas everybody else will give you a blank stare. If you cover industrials, you'll probably be able to bullshit your way through most interviews.
Lastly, I'd just say that the value of transferability only has value early on in your career (where you are right now). After about 4-6 years, it's more about having a true expertise that gives you a moat and thus making you a highly sought after professional. Think about it this way, if your industrials modeling skills are transferrable to consumer or other stuff, the same is true in the other direction (and buyside folks will wonder why they should pay you anything if they can just do it themselves). On the other hand, even a smart generalist won't know how the ALLL rollforward works, the difference between provisions and NCOs, or why a hurricane may or may not ruin an investment thesis. None of these things are useful in other industries, but you'll find a lot less competition at the end of the day.
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