How attractive is a SMID cap coverage list in sectors that are broad enough to have this (SMID tech, SMID industrial)? If you’re in this role, are you hoping that one day you get the nod to move to large cap of same sector? How likely is that?
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Based on the most helpful WSO content, covering SMID (Small to Mid) cap stocks, especially in sectors like technology and industrials, can be quite attractive for several reasons. Here's a breakdown of why it's appealing and the potential for moving to large-cap coverage:
Opportunity for Alpha: SMID cap stocks are often less covered by analysts compared to large-cap stocks. This undercoverage can lead to more opportunities for alpha, as these stocks might be undervalued or overlooked by the market. Analysts covering these sectors can make a name for themselves by identifying high-potential companies before they become widely recognized.
Specialization and Expertise: Covering SMID cap stocks allows analysts to develop deep expertise in their sector. This specialization can be highly valuable, as it enables the analyst to understand the nuances and growth drivers of smaller companies, which often operate differently from their large-cap counterparts.
Career Progression: As for the hope of moving to large-cap coverage within the same sector, it's a common career trajectory. Success in identifying winning SMID cap stocks and generating strong investment returns can certainly pave the way for an analyst to transition to covering larger companies. The skills, network, and sector knowledge developed while covering SMID caps are directly transferable to large-cap coverage.
Likelihood of Transition: The likelihood of moving from SMID to large-cap coverage depends on several factors, including the analyst's performance, the firm's needs, and the overall market environment. High-performing analysts who have demonstrated an ability to generate insights and returns are more likely to be considered for large-cap coverage roles. Additionally, as sectors evolve, there may be more opportunities to cover emerging large-cap companies within the same sector.
In summary, SMID cap coverage in broad sectors like technology and industrials is attractive due to the potential for alpha, specialization, and career progression. Success in this role can indeed lead to opportunities to cover large-cap stocks, although this transition depends on various factors.
Sources: Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, https://www.wallstreetoasis.com/forum/asset-management/qa-equity-research-analyst-at-top-3-am?customgpt=1, Q&A: Sell-Side Equity Research today, S&T to IBD?, How to pick your next sell-side research job
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