Equity vs. High Yield Research

Hi all,

Wanted to probe everyones' minds on this topic - doesn't seem to be much out there and you only hear about equity research.

Do you all think that ER is a bit saturated, or at least more saturated than HY?

Also, I take it the exit opps are a bit different - I'd imagine that HY places well into credit funds.

Comments (16)

Jul 24, 2013

ER is certainly saturated. Take a look at any mid to large cap equity on bloomberg and you will find 15-20 analysts actively covering each name with estimates. It is increasingly difficult for an ER analyst to differentiate himself from other analysts. ER is also pretty constricting as you're pretty much tied to your sector whether the sector is in favor or not which limits your marketability as an analyst.

HY, on the other hand, involves a different skill set and often requires very precise readings and strict interpretations of legal documents. It tends to be more difficult for equity analysts to understand high yield credit than vice versa. Also, HY isn't sector bound as there are finite securities yield 8%+ (especially given how robust the market is nowadays), an analyst is required to learn new sectors in order to stay relevant.

I would assume exit opps would be a HY hedge fund or asset manager.

Disclosure: Works in sell-side HY rsch

Jul 24, 2013

Yes, I was recently thinking about posting something on this. It has always perplexed me, this obsession with the equity side of business and the amount of analysts that cover that part of the cap structure. I haven't done much in the way of HY research, however after reading some of Moyer's Distressed Debt Analysis, I can't help but wonder why there aren't more sell side analysts covering debt. If you look at one company, usually equity is a very straightforward process (buy/sell/hold/etc), while in high yield or distressed, the company's cap structure is broken down and different maturities and senority comes into play in deciding what a good investment can be.

Jul 24, 2013

Well equity markets have an aggregate size of $50 - $60 trillion and the HY Bond market is roughly ~$1 trillion. Not enough volume there to generate fees, so firms would generally emphasize equity over hy rsch.

Jul 24, 2013

excellent post looking forward to the answers

"so i herd u liek mudkipz" - sum kid
"I'd watergun the **** outta that." - Kassad

Jul 24, 2013

I see, well it still seems to me that the investment opportunity within the debt portion of the capital structure is far greater than in equity. And I'm not referring specifically to HY, but from distressed on up to investment grade. I guess if there were money in it though, that banks would've figured it out long before my little revelation.

Jul 24, 2013

Well [these] sell-side firms generate revenue from flow as opposed to prop so their fees come from the bid-offer spread, not from alpha. Thus trading revenue (product of spread and volume) would be the determinant in whether to have HY rsch. There are plenty of HY asset managers / hedge funds on the alpha-interested side.

Jul 24, 2013

Question we all want to know, how lucrative is HY Research for analysts & associates?

Jul 24, 2013

ER and HY research is much of the same just focused on a specific debt offering, HY also has a focus but its much broader due to less coverage (i.e. industrials vs. a specific segment w/in industrials).... similar to buy-side

Jul 26, 2013

gr8 thread so far, any further insight from anyone ?

"so i herd u liek mudkipz" - sum kid
"I'd watergun the **** outta that." - Kassad

Jul 26, 2013

Just had my mandatory compliance refresher course. Looks like HY/credit guys are also not subject to a lot of the compliance rules and procedures that we have to follow. I don't think they have quiet periods around any kind of capital markets activity for their issuers.

I can't remember the exact details of the differences because I didn't really pay attention.

Jul 26, 2013

Which of the BBs have notable HY research teams? The only thing I can really glean much from is II, but it is very brief and I honestly can't figure out which banks even have HY research and which don't (on II rankings, seems like JPM, Barclays, BofA and WF are the only real contenders).

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Jul 28, 2013

GS should have HY research considering they have HY trading, David Tepper, the manager of Appaloosa Management was once the header HY trader.

Jul 28, 2013

GS has hy research but it's pretty middle of the pack so not surprising it didn't stick out if you were just looking at the II list

Array

Dec 11, 2013

Bump!

Mar 13, 2014

bump!

Jun 26, 2018
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