Responsibilities of an Equity Research Analyst
Working as an equity research analyst requires multiple talents and skills and can make for a rewarding career. These professionals research public companies and come up with recommendations for investors about whether to buy, sell, or continue holding certain stock. Analysts are usually assigned a particular group of companies, in a specific industry, for which they are responsible.
Brokerage firms (known as the sell-side, since they provide the research to their customers interested in making investments) employ equity research analysts. Mutual funds, hedge funds, and others that manage their clients’ money and invest on their behalf, known as the buy-side, also employ equity research analysts, who make investment recommendations to their portfolio managers. But what do these analysts actually do on an everyday basis?
- Equity research analysts research public companies and come up with recommendations for investors about whether to buy, sell, or continue holding certain stock.
- Both brokerage firms on the sell-side as well as funds on the buy-side both employ equity research analysts.
- On a daily basis, an equity analyst keeps a pulse on the stock market and company-specific news that could affect returns, updates colleagues on these changes, and issues reports.
Catch up and Keep up With the News
Typically, equity research analysts start their day pretty early, before the nine-to-five grind begins, and keep abreast of what’s going on with the companies they cover. They do this by keeping up with wire services and other news sources, and also tracking global economic and market developments and trends. Throughout the day, analysts stay on top of any breaking news that impacts the stock markets and the companies they cover, getting input from both industry-specific and general news sources. On particularly volatile market days, this can make for quite a roller-coaster ride.
Another aspect of the equity research analyst's job is to inform and update colleagues on the sales side with recommendations and insight on various stocks (buy, sell, or hold ratings) so that brokers can better explain those choices to clients. This requires critical and creative thinking, strong communication skills, and the ability to quickly and accurately synthesize data from a number of different sources and present that information in an accessible way. Analysts need to anticipate and be prepared to answer questions their sales-side colleagues may have about certain stocks, and they might also need to update senior analysts about actions taken on various stocks.
Throughout the day, analysts may have to meet with colleagues, such as their supervisors, to touch base and exchange notes and ideas.
Issue Reports and Keep Track of Companies Covered
Analysts come up with forecasts and earnings estimates for the companies they cover. During earnings season, as companies release their quarterly figures, analysts come out with their take on how the company has performed and might also update and tweak their earnings models for particular companies. In addition to following general news and economic events, analysts track any specific developments that could affect the value of the stock of any company in their particular group.
For instance, if a company announces a new product that could impact its earnings, analysts assess this news and include their findings in the reports they produce. Analysts might need to update these reports on a daily basis.
Keep in Touch With Company Management
Frequently, equity research analysts meet with the management of the companies they cover so as to get the most timely information in order to update their earnings estimates and reports. They could get such updates in person or on conference calls. While management provides such input to equity research analysts, executives have to be careful not to share any information with analysts that might impact the company's stock price and that isn’t available to the public. That would give an unfair advantage to the analysts.
The Securities and Exchange Commission (SEC) has issued rules relating to such fair disclosure practices, meaning analysts have to tread carefully with management. Some companies tend not to cooperate with analysts they feel haven’t treated them fairly in reports. Analysts need to provide investors with an accurate picture of a company’s potential, but they also don’t want to alienate a company's management and risk losing access to important information.
In the wake of misleading research issued during the dot-com boom, the SEC enforced regulatory action meant to curtail the practices of investment banks that used research reports more as an avenue to generate investment banking business than as a means to provide accurate and objective information for investors. This led investment banks to scale back on their equity research needs. However, while sell-side roles at large investment banks have declined, there are still opportunities for equity research analysts, particularly with smaller research firms and boutiques.
The Bottom Line
Analysts typically spend more time than average at their work but don’t need to put in the grueling hours associated with investment banking. In general, analysts keep up with news, update their colleagues, catch up with the companies they cover, issue and update company reports, and attend meetings in their day-to-day work. While the job of an equity research analyst has lost some allure in recent years, as firms have cut back on the number of analysts they employ, it remains a competitive field.