Sell-side research teams found themselves in an arms race in 2017 as their clients finalized preparations for a new set of rules that would dramatically change how research is paid for.
On January 3, 2018, the second iteration of the Markets in Financial Instruments Directive came into force in Europe. Contained within the new rules was a requirement that asset management firms identify the amount they pay for research separately from what they pay to execute trades.
In the 12 months leading up to MiFID II, asset managers deliberated about how much they would spend on research in the year ahead, and investment banks focused on strengthening and tightening their research departments to protect, and grow, their market share.
As banks fought to prove their research was worth paying for, a new winner emerged as champion in the 2018 All-Europe Research Team. UBS ranks as this year’s top research firm, rising from second place last year and stealing the crown from Bank of America Merrill Lynch, which placed first the past two years. Forty-two UBS analyst teams earn spots on the All-Europe Research Team this year, a steep improvement from the 29 team positions the firm claimed last year.
UBS seems to have been rewarded for a substantial investment in its in-house proprietary data collection team, UBS Evidence Lab. Daniel Dowd, head of Europe, Middle East, and Africa research at UBS, says the result underlines the progress the company has made in strengthening its research franchise.
“We are proud of our analysts, and we are also very pleased with our clients’ positive response to UBS Evidence Lab,” he notes.
The 2018 All-Europe Research Team is the 33rd annual survey of the sector and includes the input of 2,200 money managers at 889 institutions overseeing an estimated $5 trillion in European equities. Among the respondents were the money managers featured in the Euro 100, Institutional Investor’s annual ranking of Europe’s 100 largest institutional investors.
J.P. Morgan Cazenove places second overall, a notch higher than last year. The firm attributes its improved position to having grown its research team through internal promotions and external hires over the past year. In a statement, Sunil Garg, J.P. Morgan’s head of international equity research in Asia and EMEA, says the bank has worked to ensure that its research coverage footprint is among the largest of all sell-side research houses by using alternative-data analysis techniques.
“Our analyst teams leverage our extensive global capabilities across geographies and sectors to deliver differentiated and thematic views through their written product, corporate access, and conference calls,” he explains.
Last year’s winner, Bank of America Merrill Lynch, polled well again in 2018, down just one team position from last year. However, the strong showing for UBS and J.P Morgan analysts means that BofA Merrill Lynch is relegated to third place in this year’s survey. The company says it spent much of 2017 liaising with clients to better understand the types of research that they would prefer to receive, against the backdrop of the impending MiFID II rules.
“The vast majority of our clients value the level of granularity of our research,” says Simon Greenwell, the bank’s head of EMEA research. “The one thing we all know is that there is going to be less money available for research, so it is important to understand what people will pay for. We fit into the bulge-bracket global research provider category, so people expect a global service from us.”
Greenwell explains that the new regulation has split research providers into two groups: those who can provide a global service and those who are specialists in just one area.
“We are a lot more confident now about where we need to strengthen and make selective hires, but it is not something that we will discuss at this point,” he adds.
Rounding out the top five research firms are Deutsche Bank and Morgan Stanley, which rank fourth and fifth, respectively. A spokesperson for the German bank says its ranking represents recognition of the “consistent investment” it makes in its research franchise.
In addition to the annual ranking of analyst teams, Institutional Investor this year introduces a new leader board based on individual analysts. Instead of grouping analysts from the same firm together, the analyst ranking recognizes the individuals who received the most votes overall. In this ranking, UBS and J.P. Morgan Cazenove remain first and second overall, and BofA Merrill Lynch and Deutsche Bank tie for third.
