Fixed-Income Flashback: 20 Years of the All-America Fixed-Income Research Team

This year marks the 20th anniversary of Institutional Investor’s All-America Fixed-Income Research Team as a stand-alone ranking. (Until 1992 fixed-income sectors had been included in the All-America Research Team.)


This year marks the 20th anniversary of Institutional Investor’s All-America Fixed-Income Research Team as a stand-alone ranking. (Until 1992 fixed-income sectors had been included in the All-America Research Team.) To commemorate this milestone, we aggregated the data over the past two decades to determine which firm has racked up the highest number of team positions over that period. The winner? J.P. Morgan. The firm has captured 776 positions, nearly 100 more than second-place Barclays Capital, with 680. BofA Merrill Lynch Global Research finishes third, with 591 positions. Rounding out the top five are Credit Suisse and Citi, with 439 and 320 positions, respectively.

See the full ranking here.

When firms are ranked by the number of analysts and teams that have claimed the No. 1 spot in their respective sectors, BarCap is the clear winner, with 230 first-place finishes, 19 more than second-ranked J.P. Morgan. BofA Merrill, Credit Suisse and UBS round out the top five in that ranking.

To view the full list of firms ranked by their total team positions, click on the Leaders 1992–2011 tab in the navigation table in the above link. To view firms ranked by the number of times their analysts and teams have landed in the No. 1 spot in their sectors, click on First-Place Teams 1992–2011. First-Place Appearances 1992–2011 highlights those individuals who have led or co-led the teams that topped their sectors most often, while Most Appearances 1992–2011 highlights those analysts and team leaders who have ranked most often in the survey, regardless of position.

The winningest analyst in survey history — by far — is Laurie Goodman, who has led or co-led teams that racked up a phenomenal 71 appearances — 43 of them in first place — in the structured securities arena. She first ranked with Merrill Lynch, then PaineWebber, UBS Warburg, UBS and currently Amherst Securities Group. (In comparison, the analyst in second place overall — Christopher Flanagan of BofA Merrill — has led or co-led teams that appeared in the ranking 44 times.)


Goodman, a member of the Fixed Income Analysts Society’s Fixed Income Analysts Hall of Fame since 2009 and a nationally recognized expert on the housing industry — she has frequently testified on Capitol Hill regarding the mortgage crisis — earned a bachelor’s degree in mathematics at the University of Pennsylvania’s Wharton School of Business in 1975, then went on to earn a master’s degree in economics (in 1977) and a PhD (in 1978) at Stanford University. Originally intending a career in academia, Goodman worked as an assistant professor of finance at New York University’s Stern School of Business from 1978 to 1979, then accepted a position with the Federal Reserve Bank of New York as a senior economist covering the futures and options markets.

Four years later, Wall Street came calling: She joined Citicorp’s fixed-income research team, then moved to the portfolio strategy group at Goldman, Sachs & Co. in 1987. She jumped the fence to the buy side in 1989 to run money for Eastbridge Capital, a diversified financial services firm headquartered in New York.

“I loved it, but I realized I am a research person at heart,” Goodman says. She returned to the sell side in 1992 as head of mortgage-backed securities strategy for Merrill Lynch, and the following year she made the first of her many appearances on the All-America Fixed-Income Research Team, as a runner-up in MBS Strategy.

Goodman moved to PaineWebber in 1993 to lead that firm’s securitized products research group. (PaineWebber was acquired by UBS in 2000; UBS Warburg was the name of the investment banking division until 2003.) Goodman was named head of global fixed-income research in 2004.

“I was there for 15 years, and that is where I made my reputation,” she says.

And vice versa, insofar as U.S. fixed-income research is concerned: UBS and the predecessor firms it acquired have captured 199 positions on the All-America Fixed-Income Research Team over the past 20 years, and more than one third of those appearances were by teams under Goodman’s leadership.

As investor demand for structured products exploded in the middle of the last decade and firms expanded their research offerings to keep pace, we added sectors to that portion of the survey. Goodman and her teams ranked in Collateralized Debt Obligations and all of the MBS sectors: Adjustables, Agency, Credits, Nonagency, Pass-Throughs, Prepayments and Strategy.

In the fall of 2008, with the mortgage market collapsing and UBS groaning under the weight of subprime-related losses that totaled more than $37 billion, the firm opted out of the asset-backed securities business. In December of that year Goodman moved to Amherst Securities in New York as head of strategy and business development. She was drawn to the firm because it specializes in securitized products and has made a significant investment in data and systems, she says. Plus, after two decades of working at bulge-brackets, she found the idea of working at a boutique appealing.

“You don’t have to be all things to all people,” she explains. “You can pick the points that you want to focus on, drill down and do it really well.”

Reflecting on the subprime crisis, Goodman recalls that “we were negative on the market — but not negative enough” and admits that she did not anticipate the 31.8 percent drop in housing prices recorded by the S&P/Case-Shiller U.S. national index of property values for the five years through June.

The record shows, however, that Goodman did alert clients to the coming storm. As we reported in September 2007, in the article accompanying the results of that year’s All-America Fixed-Income Research Team : “As the implosion of the subprime mortgage market spread unexpectedly last month to wider credit markets, Laurie Goodman, global co-head of fixed-income research for UBS, hastily assembled a conference titled ‘Sifting Through the Rubble.’ The New York meeting attracted 120 investors, with 473 more listening via telephone. Her focus then — and for the foreseeable future — has been to help clients figure out ‘how to tell the good investments from the bad,’ she says. That is an issue Goodman has been discussing with greater urgency since November, when UBS’s 11-member structured-products research squad started sounding the alarm about an impending crisis in the U.S. housing market.”

One of the greatest lessons Goodman says she has learned from the experience is the heavy weight that public policy plays in the fixed-income markets. “Prior to this current crisis, we were more focused on trade ideas,” she says. “This has made us think of the big picture, so we are spending more time looking at what will happen on the policy side as well as trade ideas.”

And policymakers are spending more time listening to what Goodman has to say. In December 2009 she testified at a House Financial Services Committee hearing, “The Private Sector and Government Response to the Mortgage Foreclosure Crisis.” She warned committee members that the biggest problem facing homeowners is negative equity — an issue that policymakers have not sufficiently addressed, in her estimation — and noted ominously that 7 million of the 7.9 million Americans who failed to make mortgage payments in third-quarter 2009 would eventually be forced to vacate their properties. The complete text of her testimony can be read here .

Goodman addressed the Senate Subcommittee on Housing, Transportation and Community Development in May on “National Mortgage Servicing Standards and Conflicts of Interest,” stressing the importance of a consistent approach to mortgage servicing. Her testimony at that hearing can be read here .

BofA Merrill’s Flanagan also warned clients that the middecade rise in U.S. home prices was unsustainable. As we noted in that September 2007 article: “In May 2006, Flanagan published a report warning investors that a downturn in the housing market was on its way. ‘There is a problem that will take a long time to unfold,’ he wrote. Last fall, while many other analysts were talking about the markets being awash in liquidity, Flanagan was telling clients to expect big moves in the spreads of the benchmark subprime mortgage ABX indexes. He urged investors to go short and stay that way.”

His warnings went largely unheeded. “There was a euphoria, and the lenders and borrowers got caught up in it,” he says. “Most people thought home prices would continue to climb, and the banks, looking at the credit performance of loans historically, thought they would continue to perform well.”

It was a phenomenon Flanagan had witnessed before. “The process of mortgage refinancing and the methods for bringing them to market became much easier, and that gave way to the credit box expansion we saw in the early 1990s,” he says. “It really accelerated in the late 1990s, and that is when credit securitization, CDOs and structured credit really started to take off.”

Flanagan, who had a front row seat for the entire spectacle, earned a bachelor’s degree in engineering physics in 1978 and a master’s degree in electrical engineering in 1979, both from Cornell University. He then went to work as a research engineer in the Albany offices of Morristown, New Jersey-based software developer Honeywell International while working toward his MBA at the local campus of the State University of New York. He completed that degree in 1986 and joined Merrill Lynch later that year as an MBS research analyst.

He first appeared on the All-America Fixed-Income Research Team in 1993, leading the crew that finished in second place in Mortgage-Backed Prepayments. His teams would rank again in 1994, 1998 and 1999. In 2000 he moved to J.P. Morgan Chase Securities, a firm created that year by the merger of J.P. Morgan & Co. and Chase Manhattan Corp., as head of ABS, CDO and commercial mortgage-backed securities research. Flanagan became a regular on the team, logging 29 appearances through 2009 in CDOs and multiple ABS sectors.

The credit markets grew dramatically between 2001 to 2006, in part because of the major refinancing wave that took place in 2003. “It was bigger than anything I had seen before, and CDOs started to expand in that period,” he notes.

By 2007, however, growth in those markets was slowing as default rates rose. The following year, in the wake of the bankruptcy of Lehman Brothers Holdings, credit markets worldwide froze, prompting governments and central banks to launch initiatives to thaw them and stimulate economic growth. The effectiveness of those programs is still very much in question — but Flanagan had doubts about policymakers’ ability to comprehend the crisis even as it was unfolding. “It’s still not perfectly clear if the Fed understands the magnitude of what’s going on,” Flanagan told II in 2007. Many market observers raise that very issue today.

In February 2010, Flanagan returned to his old firm, which by then had become part of Bank of America Corp., to oversee U.S. mortgage and structured finance research. Despite changes in the market and in his career, he remains a regular on the All-America Fixed-Income Research Team, leading or co-leading six ranked crews last year and four this year.

“We are constantly adapting our research,” he says. “Now that credit has tightened, we are adapting to that by recalibrating models and incorporating policy and political analysis into what we do.”

Dale Westhoff is no stranger to adaptability and change. Before becoming a structured securities analyst, Westhoff designed satellites for Culver City, California’s Hughes Aircraft Co., having earned a bachelor’s degree in civil engineering and computer science at Colorado State University in 1984.

“It was a cool job to have right out of school,” he says. “I was working on James Bond–types of technology.”

However, he soon found himself drawn to the world of high finance. He enrolled in the MBA program at NYU’s Stern School, graduating in 1990, and then took a job as an associate MBS analyst at Bear, Stearns & Co. Eventually he would be named senior managing director and head of quantitative research.

“I was very interested in some of the more arcane fixed-income sectors, in particular the modeling aspects of mortgages,” he says. Westhoff, who built that firm’s first prepayment model, debuted in first place on the All-America Fixed-Income Research Team in 1993, in Mortgage-Backed Prepayments. It was the first of 29 appearances in the structured-products portion of the survey — 17 of those at No. 1 — through 2008.

Looking back, Westhoff says the demise of Greenwich, Connecticut–based hedge fund Long-Term Capital Management in the late 1990s was a defining moment. “It was the first time I really saw a complete dislocation in the market, affecting liquidity and pricing dramatically,” he says.

But it would not be the last time. “The economy slowed down after the dot-com bubble burst and the September 11 terrorist attacks, prompting the Fed to lower rates to generational lows,” Westhoff says. Borrowers were able to take out adjustable-rate mortgages, shorter-duration loans and hybrid mortgages, redefining how prepayment risk was calibrated, measured and modeled, he explains. Easy credit led to rapid expansion of the Federal National Mortgage Association and Federal Home Loan Mortgage Corp., pushing the mortgage market into the subprime and alt-A space, Westhoff recalls: “It brought us to the painful period of deleveraging that is going on today.”

Westhoff experienced some of that pain when Bear Stearns became the first victim of what would come to be known as the subprime crisis. Faced with mounting subprime-related losses in its hedge funds and a loss of liquidity, the firm agreed in March 2008 to be acquired by JPMorgan Chase & Co. in a government-backed deal that valued Bear at a mere $2 a share — the previous month those shares had been trading above $90. In May of that year, Bear Stearns shareholders approved the takeover at the modified price of $10 a share.

In May 2009, Westhoff decided the time was right to exit the business. “I left because the environment changed after the merger,” he says. “I had been doing this kind of work for 20 years and wanted to spend more time with my wife and daughters.”

Friends warned that he’d get bored within two weeks, but Westhoff says could not have been happier as a stay-at-home dad. He traveled extensively during his time off and worked with his wife at her burgeoning textile-design business. “It was fantastic,” he says. “I enjoyed every single minute of it.”

Meanwhile, job offers kept coming. In February, Credit Suisse convinced Westhoff to return to the industry as that firm’s global head of securitized products research. “It was a tough decision to come back, but the job was attractive to me,” he says. “There were aspects of the opportunity that were similar to how we built the mortgage research and analytics platform at Bear Stearns.”

The financial crisis has created plenty of credit data for Westhoff to use in modeling. “Now more than ever there is a greater need for accurate and transparent risk metrics when analyzing residential mortgages and other securitized products,” he explains. “I want to be a part of that recovery and provide those services to mortgage investors.”

Of course, the effects of the subprime crisis have been felt far beyond the financial services sector. The evaporation of credit brought the U.S. auto industry to a screeching halt in late 2008 and led to the bankruptcies of Chrysler and General Motors Corp. the following year — hardly the first challenge U.S. automakers have faced in the 14 years that Brian Jacoby of Goldman Sachs has been covering them.

Jacoby, who has ranked in the All-America Fixed-Income Research Team survey 25 times, graduated from Seton Hall University in 1989 with a bachelor’s degree in finance, then joined Standard & Poor’s as an insurance analyst. He earned an MBA at Pace University in 1993, then took a job at J.P. Morgan covering debt instruments of companies in the aerospace and defense, auto and capital goods industries, as well as the insurance sector. In 2002 he moved to Morgan Stanley to cover the same industry sectors but dropped coverage of insurers, and in 2005 he joined Goldman Sachs.

Before the subprime crisis, Jacoby says, two events had changed the way investors looked at fixed-income markets: first, the accounting scandals in the early part of the last decade, specifically the 2001 bankruptcy of Houston-based energy giant Enron Corp. and the 2002 failure of Clinton, Mississippi–based long-distance services provider WorldCom, which at the time was the largest bankruptcy in U.S. history. Each company had failed to disclose the full weight of the debt load it had assumed; in response to these and other corporate scandals, Congress passed the Sarbanes-Oxley Act in 2002.

“That had a big impact on the fixed-income market, because it changed the disclosure rules,” says Jacoby. “Companies are now required to disclose a lot more about off-balance-sheet debt obligations and about revenue and expense recognition.”

The second major event was the advent of credit default swaps, which were introduced in the early to mid-1990s. With these instruments, “investors had a new way to look at credit risk and price it for corporations,” Jacoby explains.

Fast forward to 2008, when the spreads on automakers’ CDSs were widening and investors were banging on analysts’ doors, desperate to discover whether the debt-ridden manufacturers were in danger of default. “Well before GM’s bankruptcy, we had its bonds rated at underperform,” Jacoby recalls. “It was a tough situation, because at the time it was hard to gauge if the government would provide enough aid to avert a bankruptcy.”

Unlike the rapid demise of Enron, which collapsed in less than a year, the downfall of the auto companies took place over a relatively long period of time — dropping from solid A credit ratings in the mid-1990s to triple-B by the early 2000s and then to high yield in 2006 and 2007. “By 2008 the Detroit Three [had become] distressed credits, requiring recovery analysis to determine how much bondholders would recover in the case of a bankruptcy,” says Jacoby. “It was an entirely different type of analysis versus what was wanted by investors back in the 1990s.”

Bruce Klein can attest to the way client expectations about fixed-income research have changed in recent years.

A 1987 graduate of the University of Vermont with a bachelor’s degree in economics, Klein began his career as a junior analyst covering money markets and high-yield instruments for Integrated Resources, a financial services firm headquartered in New York. In 1989, while in the process of earning an MBA at Fordham University (which he would receive in 1990), Klein moved to Donaldson, Lufkin & Jenrette as a research assistant covering the industrials sector; he stayed with the firm through its acquisition by Credit Suisse in 2000. (Six years later the firm dropped First Boston from the name.)

When Klein joined DLJ, the high-yield market was still in its infancy. “There were lots of bad deals being done, and people questioned the viability of a high-yield market,” Klein recalls. But the doubts didn’t last long: “As the global appetite for yield grew, investors viewed it as an attractive asset class and as an alternative to equities,” he says.

The analyst expanded his coverage to include metals and mining and paper and packaging. He debuted on the All-America Fixed-Income Research Team in 1993, in the top spot in Basic Industries — the first of 29 appearances in the ranking (including a dozen first-place finishes) through last year, when Credit Suisse moved its research analysts to the trading desk and dubbed them sector strategists.

Klein approves of the reconfiguration. “It’s more fun,” he says. “There is more action, and you are closer to the activity.” Sector strategists still follow companies and publish, he says, but they have stopped giving formal buy, hold or sell recommendations. “The change allows us to react quicker to the news and to be more nimble with our client base,” Klein explains.

That flexibility is crucial given the market volatility created by the crisis, in which “every asset class got crushed, including high-yield debt,” he says.

Klein likes the challenge of helping clients identify the good investments from the bad. “Having been through several cycles and understanding the space and the companies I follow has helped me weed through it,” he says, noting that companies he’d always considered rock solid were trading at 40 cents to 50 cents on the dollar in the wake of the market rout. As a result, “it’s probably the best opportunity most investors would see in a lifetime,” he says.

The current turbulence in the equity and fixed-income markets has left few investors focused on buying opportunities — but those that are would do well to follow the advice of battle-tested veterans of the All-America Fixed-Income Research Team.