Sector Selection & Process at MMs
Current MSc Finance Student at a Euro Target heading Full-Time at a top BB Coverage Group in London. Planning to move to a MM HF platform down the line and had a few questions about sector selection.
Would be grateful for some older/more experienced guys to chime in!
(My understanding of Markets is still relatively new so apologies in advance if my questions seem obvious to some :))
1. Let’s say you’re optimizing for seat longevity and minimizing blow up risks. Under a market Neutral Factor/Risk constrained model, assuming you are optimally exploiting the sector’s chosen characteristics, which sector offers the most opportunities to exploit?
1/a. When thinking about opportunities in TMT vs Industrials for example. Would it make sense to (grossly) simplify it down to fewer different variables each with a higher capture probability vs a higher number of variables with much lower capture probabilities ?
1/b. If so, given the MMs focus on process and repeatability and given they incentivize you to scale your books, would it not make sense to look for (potentially) lower GMV returns but more sustainable alpha generation ?
1/c. What do you look after when analyzing Flow dynamics, inefficiencies/lags in pricing & perception?
1/d. How do you think about how your edge/process is relevant when monetizing opportunities?
2. Completely unrelated but I understand Analysts typically cover up to 20-50 names. Assuming it takes 1-3 days to build a model from the ground up (possibly less if you have the Sell-side ones from which you can just expand). How much time is spent when changing seats on just rebuilding the infrastructure? Are you expected to start from the ground up each time or does your PM just hand you a flash drive with the older ones ?
Firstly you’re European so some of the US-centric advice doesn’t apply here due to the scope of opportunity being much smaller. Sectors which are in vogue in US markets are not applicable to you unless you join a scaled pod which covers US names too.
With that disclaimer out of the way, you’re overcomplicating this. Optimise for the PM/team. The sector, unless it’s extremely niche like energy/fins, doesn’t matter. Yes you should focus on process and repeatability but realistically you won’t know what a good and bad process is.
Try find someone with tenure who you seem to jive with. Try speaking to the sell side/former analysts to get a feel for how they perform/treat juniors.
This can actually be tricky, liquidity and market cap in EU can be horrific, so you get a lot of sub scale books in London, even at the bigger shops.
Thanks a lot for your answer, yes I was feeling like it started to become mental masturbation ahah.
On a side note, how easy would you say it is to move from London to NYC assuming you perform well at one of the pods ?
Not that often
Have seen it happen for top performers
It’s not about performance it’s about need for your pod/Sr PM. But it’s not common.
As a risk taker/PM you can have more control about your own “business need” but I suspect this varies firm to firm.
Really the justification tends to be “hey I’m an established and respected PM at the firm, you’re my analyst and you’re mainly covering US stocks, I’m gonna get mgmt to send you over there so you’re closer to the action”
generally though, equities mgmt teams are wanting to diversify talent out of the US. Broad strokes.
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