Equity Research Faces "Major Disruption" As Study Finds "Less Than 1%" Of Reports Are Actually Read

Tyler Durden's picture

What if we were to tell you that for the bargain basement price of just $10,000 per hour you could buy yourself the privilege of a 1-hour conversation with an equity research analyst from a top-notch investment bank, would that be something that might be of interest to you?  While we hate to be overly pessimistic, we're gonna go out a limb and guess that most of you answered in the negative to that question.

As we pointed out a few weeks ago, the traditional I-banking equity research model is about to undergo a radical transformation courtesy of the new Mifid II regulations set to go into effect in 2018 in Europe.  Among other things, the new rules require i-banks to break out the pricing of equity research charged to buyside clients, which up until now had been provided 'free of charge' but effectively covered by trading commissions.

The problem, as anyone who has ever been flooded with a daily barrage of 1,000s of reports can attest, is that while the supply of equity research is seemingly endless, the demand may not be quite as pervasive as the bulge bracket banks once thought. 

As Reuters points out today, just the top 15 global investment banks produce over 40,000 research reports every single week.  Unfortunately, only about 1% of those reports are actually read by investors on any given day and we suspect even that estimate is generous.

For example, about 40,000 research reports are produced every week by the world's top 15 global investment banks, of which less than 1 percent are actually read by investors, according to Quinlan.


More than 30 analysts cover HSBC (HSBA.L) (0005.HK) on a regular basis, though only 11 of them have a rating of three stars or above even though it is a key factor of consideration by many global fund managers.



Meanwhile, the fairly massive supply/demand gap for research seems to be driving a wide bid/ask spread between what investment banks require to cover the costs of their expensive analysts and what their buyside clients are willing to pay for the end result.  In fact, a recent survey of fund managers by consultancy Quinlan & Associates found that analyst headcounts at banks would have to fall by 30% by 2020 in order to eliminate all of the costs that funds simply wouldn't be willing to absorb (a.k.a. the "crap" as one fund manager put it).  Per the  Financial Times:

“The figures are all over the place at the moment. Some [quotes] are fair and reasonable, and [with others] we thought: there is no way we are paying that — they will have to recalibrate their business models or part ways with us altogether.”


“This is the biggest problem,” he said. “It will cause a lot of problems in 2018 because no one has worked out how much the research is worth.


“There will be a lot of c**p that clients won’t pay for and that is when the big cuts [to the analyst workforce] at the global banks will come. The feedback from many [in asset management] is that the price of research is too high and not granular enough.”

Meanwhile, with the large global banks looking to charge clients $300,000 - $500,000 per year to cover their bloated equity research budgets, the more nimble, independent research providers could be on the verge of some major share gains.

A period of severe turmoil is facing the securities research industry as a regulatory overhaul threatens the way investment research is done.


Online portals, in particular, are set to gain market share at the expense of major "bulge bracket" investment banks, reaching a forecasted market share of $1.4 billion or 15 percent of the global investment research industry spend by 2020 - from less than 1 percent last year.


"The global investment research market is on the cusp of major disruption," said Benjamin Quinlan, CEO of Hong Kong-based Quinlan & Associates and author of a report on the challenges facing the research sector.

Frankly, we're not sure how the hedge fund industry will survive without an army of 23-year-old equity research analysts writing hourly updates instructing managers to BTFD.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
hedgeless_horseman's picture

The PPT killed the CFA.

Drowned them in a sea of liquidity.

knukles's picture

I used to throw reams of research away every day for decades.
And then they'd come back and want soft dollars for it.

Now there's an oldie  "Soft Dollars"

nuubee's picture

The only thing less trustworthy than an investment report is the NY Times, so you can see why I use mine as coasters.

Sanity Bear's picture

It's not like we didn't already know that Wall Street is composed primarily of hideously expensive bullshit.

TrollandDump's picture
TrollandDump (not verified) Sanity Bear Mar 28, 2017 6:08 PM

Here's some Major Disruption:

Meet Tiger Woods’ Reportedly New Girlfriend


Stuck on Zero's picture

Couldn't we train a robot to read these reports? After all, aren't they written by robots?

Automatic Choke's picture

they've replaced the Sears Catalog as paper for the outhouse.

Chief Wonder Bread's picture

They could move to North Dakota

maybe they already have faik

*they being the analysts

philipat's picture

Perhaps it's a little like MSM (a/k/a Fake News), nobody believes them anymore. In a directly analagous fashion, perhaps if these reports actually provided some truth instead of endless "Sell Side" BS, they might be more widely read?

waterwitch's picture

Gartman reads them! All of them!

bob_bichen's picture
bob_bichen (not verified) TrollandDump Mar 28, 2017 7:29 PM

UPDATE:  Spammer has taken to "hiding" the link to his SPAM publication:  dailywesterner,com  = SPAM - VIRUS - TROJANS !!


Chronic spammer XYTHRAS has "reincarnated" in a Truth-in-Advertising new handle as "TrollAndDump."


Take a minute and write to abuse@zerohedge.com and ask that this SICK, SPAMMING FREAK SHOW of a TOXIC DUMPSTER FIRE who suffers from a serious case of SPAMMING COMPULSIVE BEHAVIOR and request that  "TrollAndDump" and "XYTHRAS" be permanently banned for chronic spamming

philipat's picture

He's an amateur compared to:

lexxus, kavlar, lhomme, letsit, tazs, techies-r-us, stizazz, lock-stock, beauticelli, Mano-A-Mano, mofio, santafe, Aristotle of Greece, Gargoyle, bleu, oops, lance-a-lot, Loftie, toro, Yippee Kiyay, lonnng, Nekoti, SumTing Wong, King Tut, Adullam, espirit, rp2016, Holy hand grenade of Antioch, One of these is not like the others (and about 30 other suspected names)

who continues to post away and "talk to himself" on ZH. So good luck with your campaign, mine had no success at the ZH end but got a lot of support from regular posters.

Chief Wonder Bread's picture

I'm not a campaigner

I just hate that motherfucker

Thinkpad's picture

99% of research reports is noise leaving 1% of information added value. Sounds about right to me. Long ago money managers understood street Research is worthless too biased

Hitlery_4_Dictator's picture

Duh the Bernake started the BTFD movement, charts and reports are for idiots. Control Alt Print is all that's required to know.

biker's picture
biker (not verified) Mar 28, 2017 5:37 PM

Not enough pretty pictures and funny colors. Add more skin, tits n ass.

BurningFuld's picture

Like Hooters but with more and even bigger boobies.

GUS100CORRINA's picture

Equity Research Faces "Major Disruption" As Study Finds "Less Than 1%" Of Reports Are Actually Read



abyssinian's picture

Didn't know algo robot traders read research reports....lol this is too funny

major major major major's picture

Not only do the bots read them... they write them... don't scare the bots

Publicus_Reanimated's picture

Actually, you may be on to something.  I'm certain the people who are responsible for releasing these reports know exactly what their human market penetration is.  That's not the point.  The point is to generate "buzz".  You do that by putting that message out there, where it is most assuredly read by an algo machine because that's one of the things that they do.  Twitter, Facebook, SSRS, blah blah blah and the banks want the algo machines reading their reports.

Yen Cross's picture

  That's what the ALGO's are for... </sarc>

Muad&#039;Grumps's picture

We also have a bubble in Bogleism. There's no stoping these tards.



Chief Wonder Bread's picture

doctors as a a rule are clueless except in their specialty

(referring to the comment section in your link)


onthedeschutes's picture

The only "Equity Research" we are interested in are the reports on top holdings of foreign central banks and the fancy swaps our Fed does with each to slam the vix, and goose the e-mini s&p500 on an as needed basis (daily).

major major major major's picture

Research is a good way for the i-bankers to get M&A, underwriting and other transaction fees for providing a buy rating...

indygo55's picture

Fucking Banks! If it ain't got no insider info mutherfucker then i'll get my shit on the internet on my OWN!!

itstippy's picture

Introduce Mrs. Tippy to the CEO.  Have her ask him what he thinks the company's prospects are and why.  Then ask Mrs. Tippy what she thinks of the guy and his company.  That woman can smell bullshit like a bloodhound smells human tracks.

Unfortunately, after meeting a few Corporate CEOs and Investment Research Professionals I'll bet Mrs. Tippy would quit the gig no matter what it payed.  There's no room in high finance or politics for people like her.

Automatic Choke's picture

who bothers to read equity research when it is all tripe?   no GAAP accounting, all bells and whistles, all lies.   every CFO I've known made it an open joke what a prostitute he/she was..... "any answer you want" is the old joke.  

I stopped paying for my Valueline subscription nearly 10 years ago..... it is no longer a market, it is a carnival.   Buy and hold commodities....heavy shiny ones.

nufio's picture

maybe someone write a scigen equivalent for an equity research report and sell it to investors.  https://pdos.csail.mit.edu/archive/scigen/


Catullus's picture

There's never a lack of supply of bullshit.

It's why the insider trading laws need to go as well.  You wouldn't never be able to siphon the real insider information from the bullshit either. The equity analysis might actually be good. It doesn't matter.

Zero_Brains's picture

When the solution is simple, God is answering. Albert Einstein

Grandad Grumps's picture

To state the obvious, the reports mean nothing when price is computer controlled and not in any way related to fundamentals.

If you want reports to mean something again? You can figure out how.

Ban KKiller's picture

Don't forget the honest "accounting". 

black rifles are cool's picture

Arthur Andersen ... hahahahahahahahahhaaaaahahhaa

Giant Meteor's picture

Why this is terrible! How in the hell can anyone trade without benefit of sound research!?

No research, no fundementals, no humans ..

What's next !?


Sledge-hammer's picture
Sledge-hammer (not verified) Mar 28, 2017 7:58 PM

Just a thought from a nobody with nothing flyover guy, I would submit that all of this vaunted and voluminous research is fluffy cock and bull.  The way things really work is that there is a (((rent-seeking oligarchy of 1&ers))) who collude with our corruptocrats to wheel and deal over drinks, steak dinners, golf games, and ritzy parties.   The oligarchy gets what it wants from the corruptocrats and vice versa.  The rest of us are temp workers who get to service the oligarchy, get to be the tax donkeys paying the freight, and create the cock and bull fluff research to put a pretty and "legitimate" face on it all.  But that's none of my business.

Chipped ham's picture

... it's none of my business



Chris88's picture

Of course less than 1% are "read" - many PMs/buyside analysts that use these are sector-oriented (I don't know how the fuck anyone is a generalist).  So if your bank covers, let's say, 1,000 companies among 10 industries and let's say 20 sectors, a given PM may only want FIG, that guy will only care about 7% of that coverage, and he may actually only "read" in its entirety half of those reports.  

Being on the buyside, our fund has different tiers for sell side research.  Our tier 1 & 2, banks whose research we use the most, is more for idea generation than developing a deep understanding of the company.  We care more about corporate access and getting to speak to the sell side analyst and attend conferences than we do about the reports themselves.  If we want to assess a potential short position quick, it's easier for us to request a full working model to toggle for our own assumptions so it doesn't need to be built-out over days as the analyst pours through Ks/Qs/proxies/transcripts.  

There's no doubt the industry has changed for the worse due to the idiotic regulators (I'm in the US so we still pay in soft dollars and will through 2018) and that both the sell and buy side are being squeezed for fees amidst intense competition, but the premise of this article is pretty stuipid.

rex-lacrymarum's picture

I agree, while different buy-side institutions have different approaches (what you describe is the m.o. of quite a few hedge funds), I know that all of them pick stuff out of the flood which they actually read/use.  There are also a number of sell-side macro researchers whose reports are quite popular (and often useful as well). 

AG900's picture

I only read the first line of this...

Treetop's picture

As Warren Buffet proved...the S&P index fund, the one with nearly 0 cost, will beat any basket of hedge fund managers handily over any longish timeset.

So...research issued to CYA investing, is also going to be sub-par. The other issue is one of lack of short sell ideas to balance the long positions..

Finally, as an old friend once said, if you invest ina good company and they make a decent return on equity and you hold it long enough, you will do better than brillian idea hopping.


amanfromMars's picture

Howdy, Tyler,


Is ZeroHedge one of those novel online equity research portals, and an essential commodity for traders, both day and zeroday, markets and future derivatives, deep and darkly into the sorting out of wheat from chaff, and fact/reality from fiction/ponzi market productions?


Bravo, Amigos ….. with AI is that a Great Game Play. And IT virtually leads practically everything with Global Operating Devices?!.


Oh, and Welcome.

Iconoclast421's picture

Why read when you can just follow the printed money?

tipranks123's picture

This is the reason we started TipRanks- a website that ranks analysts based on their success rate and average return- so that investors can spend their time only reading the reports/ checking ratings from the Street's best analysts and cutting out the rest.