When it comes to the quality of securities research, it is no surprise that investment advisors rate their firms’ equity research higher than mutual fund research, given the prominence of equities in their books. What is surprising, however, is that even though scores for quality of mutual fund research still lags equity research, it has improved significantly year-over-year.
Advisors in the 2008 Brokerage Report Card gave quality of equity research an overall average performance score of 8.2 and an importance score of 8.3. Conversely, quality of mutual fund research rated lower both in performance, at 7.3, and in importance, at 6.8 — reflecting the fact that equities continue to make up the bulk of investment advisors’ books.
Only one firm, Vancouver-based Leede Financial Markets Inc. , saw its equity research rating improve by more than half a point, scoring a 7.7 this year vs 6.7 in 2007, the result of Leede introducing a in-house research department.
The average mutual fund research performance score was up substantially from 6.4 in 2007, however, with three firms receiving much higher ratings this year. Advisors at Toronto-based Richardson Partners Financial Ltd. gave their firm a category-leading 8.7, vs 6.6 in 2007; Toronto-based Blackmont Capital Inc. received a score of 6.5, vs 5.2 last year; and Vancouver-based Canaccord Capital Inc. received a rating of 7.1, vs 5.7 in 2007.
Both Richardson Partners and Blackmont emphasize helping advisors interpret and use mutual fund research, which accounts for their improved scores. Blackmont also has mutual fund analyst Scott Barlow heading up its financial advisors support team, a position Barlow describes as the “traffic cop for investment information from all sources.
“We don’t publish a list of recommended mutual funds,” he adds, “but we help advisors with them.”
This is appreciated, as a Black-mont advisor in Ontario, who rated the firm’s mutual fund research at 8.0, says: “Our point guy is the best in the business.”
At Richardson Partners, the emphasis is on equity research. And advisors are very pleased with the diversity of the research the firm provides, giving the category a rating of 9.1 this year, up from 8.7 a year ago. Besides in-house research, Richardson Partners advisors also have access to equity research from seven third-party providers: Zurich-based Credit Suisse Group provides Canadian, U.S. and global equities research; National Bank Financial Ltd. in Montreal, Toronto-based Genuity Capital Markets and Thomas Weisel Partners Group, also in Toronto, provide Canadian equities research; Calgary-based Tristone Capital Inc. offers energy research; and Standard & Poor’s Corp. and Value Line Inc. , both in New York, provide U.S. research.
Also, Morningstar Canada provides mutual fund research.
As one Richardson Partners advisor in Quebec puts it: “I am well served by third-party research.”
Yet another was enthusiastic about the Credit Suisse research, which was expanded to include global equities last summer.
But quality of equity research is just one element of the higher rating, says Sue Dabarno, Richardson Partners’ president and CEO. Credit goes to the firm’s private-client research team, she says: “The improvement in scores doesn’t reflect just the quality of research, but also the availability of staff to interpret it and advise on how it fits into investment strategies.”
“Our job is to interpret and make sense of the research,” says Andy MacLean, director of Richardson Partners’ private-client research team in Toronto. The team is very experienced, he notes, and has gone through a number of market cycles.
The team provides weekly and more detailed monthly updates, economic outlooks and reports on special opportunities. It also works with individual advisors and their clients. “Because the firm is fairly small,” MacLean says, “we can work directly with advisors and meet with clients.”
The introduction of a Montreal-based bond desk early this past fall has also enhanced the firm’s resources. “We continue to look at new initiatives,” MacLean says, adding that increased functionality of analytic tools and some new model portfolios are on the agenda. “You have to make enhancements to grow.”
Advisors at Blackmont also handed out higher ratings for equity research — 7.9 this year vs 7.4 a year ago. The firm’s research department focuses on “undercovered stories” and new ideas, says Mike Binette, managing director for equity research at Blackmont. The firm also prides itself on being “ahead of the curve”; Binette points to banking analyst, Brad Smith, who flagged the global credit crunch early on.
@page_break@Another of Blackmont’s strengths in equity research is its focus on small to mid-sized growth stocks. “In that area,” Binette says, “we have been very good over the past years in finding some neat names.”
The team also follows though on its recommendations. “We don’t just provide an initial report,” he says. “There are updates and a continuous flow of information. There’s nothing worse than hearing about an opportunity and not getting follow-through. We call this ‘maintenance research’.”
However, comments from Blackmont advisors were mixed. Some didn’t feel there was the depth in Blackmont’s research that they’d like; others said the research is getting better; quite a few said it was excellent. The quality of banking analyst Smith’s work and the oil and gas research, particularly, were mentioned.
Leede Financial, which is in growth mode, took advantage of other firms’ layoffs to start a research team late this past summer. “We’re getting new advisors,” says Robert Harrison, the firm’s president and CEO, “and want to give them some in-house news and guidance.”
Leede Financial’s research team has two analysts, two analysts/salespeople and two institutional traders. The research focuses on finding “significantly undervalued companies.” The team also provides advisors with a good deal of outside research on Canadian and U.S. companies.
Says a Leede Financial advisor in British Columbia: “We have a broader range than most.” IE