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What Does World-Class Equity Research Look Like?

The top two providers — UBS and Citi — have very different ideas.

Five years ago, the top equity research provider in the world — according to money managers surveyed by Institutional Investor — was Bank of America Merrill Lynch. Back then, UBS and Citigroup were not even among the top five equity research providers. 

Half a decade later, UBS and Citi lead II’s ranking of global equity research firms — a leaderboard showcasing the combined results of regional rankings such as the All-America Research Team and All-Asia Research Team.

UBS finished 2019 as the world’s best equity research provider, a title the Swiss bank has claimed for the third year in a row. Citi, meanwhile, solidified its position as one of the industry’s top players by jumping to the No. 2 spot, up from fourth place in 2018.

Although both firms have successfully overtaken rivals like BofA Merrill Lynch — which this year ranked third in equities research — they’ve taken opposing routes to the top of II’s leaderboard. UBS, for one, has differentiated itself as the leading provider of unique, data-driven insights powered by the bank’s signature Evidence Lab. The data science division, which last year spun out of the research department to become a separate business within UBS, employs a roster of data scientists and subject matter experts who work with UBS analysts to answer big questions about industries, markets, or the economy at large.

“With the build out of Evidence Lab, we’ve gotten to where we can have more than just one or two data sets that are useful to help address the pivotal questions in an equity sector,” Dan Dowd, global head of research at UBS, said by phone. “We have this primary data in addition to the public data that we and our competitors are looking at.”

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Citi, meanwhile, has taken a more traditional approach to strengthening its research division over the past few years. Under global head of research Andrew Pitt, the bank has focused on broadening its sector coverage and building a talented team of fundamental equity analysts through a combination of hiring and developing existing talent. According to Pitt, Citi now has the second-largest equity coverage footprint of any research provider, even after a restructuring this year that included a “trim” of the research business.

While Citi has also invested in data science and built out a team of quantitative analysts, Pitt is quick to downplay the role of data analysis in Citi’s overall research offering. “We have tried not to overspend on data science at the expense of traditional research,” he said by phone. “There is an important question of how and where we can add more value than what our clients can do by themselves or can source from data specialists. We assume that if a major data company can create an identical product without a banking license, then they’ll do it better and cheaper than us.”

This view is in direct contrast to those at UBS. According to Dowd, Evidence Lab’s existence alongside an equity research department gives it an advantage over other data providers, because it can leverage the knowledge of UBS stock analysts.

“The Evidence Lab has true, deep experts in primary data collection,” Dowd said. “They are great at that. What they are not experts in is knowing what questions to ask. Those questions come from research. Because in order to ask the right question, you have to be an expert in the sector.”

At the same time, Dowd noted, investors are generally not looking for raw data — which is where the equity research team comes in. “You have people who can bring real insights based on proprietary data,” he said. “That’s what clients are paying for and that’s what they’re voting for.”

UBS’s data-heavy approach has so far been the more effective of the two, at least in terms of II’s equity research rankings. However, it is worth noting that while UBS peaked at the top of the leaderboard in 2017, Citi has continued to gain ground over the last three years.

This year, for example, UBS accumulated the highest total number of equity research team positions across all of II’s regional surveys, with 155 positions. Citi, in second place, earned 144. However, Citi’s total included 38 first-team positions — by far the most of any firm. UBS, by comparison, earned 21 first-team positions.

“I think that the role of a very good fundamental analyst is still critically important,” Pitt said. “We’ve got a core of extremely good analysts here that we can always maintain a successful business around.”

Despite their firms’ differences in overall strategy, Dowd and Pitt agree on at least a couple of areas of opportunity for sell-side research departments. Both UBS and Citi have placed an emphasis on in-depth, thematic research. UBS produces what it calls “Q-Series” reports on topics ranging from 5G networks to space travel. Citi, similarly, has Citi GPS, a series of reports focusing on subjects like the role of women in the economy and how technology is changing the workplace.

Both firms are also investing in environmental, social, and governance research, which Dowd and Pitt both cited as a growing area of client demand.

“This isn’t a fad,” Pitt said. “It’s a real secular trend.”

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