According to a recent Investext survey of over 200 financial professionals, ‘Many investment banks are in danger of swamping their corporate finance executives with a plethora of databases, often without consultation or the proper provision of training.’
Investext quotes Bankers Trust vice president Chris Kinghorn as believing that ‘when technology alone drives the introduction of end-user products onto desktops, it is not surprising to find that those users are more bewildered than enlightened.’
Swamped by data
But those who are enlightened can enjoy significant competitive advantage in collecting information. Although print and personal contacts remain key for most fund managers and analysts, a growing percentage obtain their information electronically. That’s an IR opportunity and an IR challenge since those online sources are in a state of constant flux. The number out there is mind-boggling. And specialist delivery of the same information by one particular service provider can depend on which is the flavor of the month.
Take Scottish Widows. Alan Denholm, investment director responsible for its $1.8 bn US equity portfolio, says: ‘We use various electronic systems to obtain our research information. For instance, First Call and First Call Research Direct. For earnings revision information, our source is IBES, and we use Datastream for historical price and economic information. We also use two valuation systems: Stockval, for US companies primarily, and Holt, for a global view. And these systems are not cheap.’
Much of the information Denholm accesses is available gratis from broker web sites, but he prefers to pay for these systems because they aggregate the information available on the individual web sites.
‘Instead of going into six or seven web sites, the data is provided on a single platform,’ Denholm explains. ‘We are willing to pay a small monthly fee to have the information delivered in a timely manner and filed in our own electronic filing cabinet of US broker research. These systems allow us to increase our efficiency.’
A few feet yet a world away sits his colleague, Osami Ikeshima, Japan analyst at Scottish Widows, who swears by his expensive Quick terminal because ‘its prices are entirely accurate. Sometimes the business information is not correct, but prices are always correct.’
Other electronic sources of information which he has used, including household-name products, have been less dependable. Ikeshima also uses the Quick system – which is available in English and Japanese – to access Nikkei/Dow Jones News for a wide array of company, industrial and economic news and information.
Nikkei News is also accessed by Rob Reiner, managing director and portfolio manager for Bankers Trust in New York. ‘It’s in English, it’s instantaneous, and it’s free. I get the Asian headlines at about 4 pm, sometimes earlier, in New York, while Japan is asleep. You get an edge by knowing a little more before the next guy does.’ It is free because it is on an open-to-the-public web site (www.nikkeibp.asiabiztech.com), even though ‘most of my peers don’t know it exists,’ muses Reiner. ‘In fact, my sources generally are free, most importantly Ziff Davis’s ZD Net (www.zdnet.com) and the Silicon Investor (www.techstocks.com). The latter is based in Silicon Valley, and contains charts, discussion forums and company profiles for more than 500 technology stocks. No password is needed for these sites which are hugely popular with the general public.
For Melissa Brown, Prudential Securities director of quantitative research in New York, ‘Data is plentiful, but information – how the data is put together – is scarce. Information is vital.’
Prudential subscribes to, among other services, Factset and Barra. ‘In addition to factual information, we need risk information and other data,’ says Brown. ‘We use Factset’s equity research databases including IBES, Compustat, Global Vantage, First Call and Value Line. It’s easy to access, the delivery is good, and we can use it to screen data, obtain information on a particular company, and in a number of other ways. We also use it to test models; for example, buying low P/E stocks. If something is on a database, Factset (www.factset.com) has historical data for it.’
Based in Berkeley, California, Barra (www.barra.com) provides analytic models in risk management, returns forecasting, transactions analytics and asset allocation. ‘Barra is well-known in portfolio management. For things like optimization and risk management, it is very good,’ says Brown.
Three up top
In their electronic distribution report published last August, UBS’s Simon Asplen-Taylor and Mary Cullinane describe ‘three organizations, First Call, Primark IBES, and Multex, which have succeeded in varying degrees at building up warehouses of research.’ Geography plays a role for each, says the report. First Call Notes dominates in North America, and Research Direct in Europe and Asia. Trapeze is well known in Asia, and Primark has recently started marketing the product in Europe.
Multex brokerage reports can be accessed on Reuters Broker Research and Multex on Bloomberg, and also on MultexNet (www.multex.com), its own web site. Multex has also concluded agreements with Dow Jones Markets, ADP-Quotron and Bridge. Meanwhile, Reuters 2000 is being superseded by Reuters 3000, and Quick Level I can’t hold a candle to Quick Level II. Doubtless these new products will give way, in even more rapid fashion, to Reuters 4000 and Quick Level III.
Online aversion
Strange as it may seem, some old-school fund managers and analysts continue to shy away from online resources. For them, too much choice equates to no choice at all.
Denholm believes that some resistance is explained by a self-defeating sense of economy and value: ‘For instance, when Research Direct first came out, there was a monthly charge to use it, and many of our competitors thought, Why pay extra for something I am already receiving in paper from my broker? They couldn’t see the wood for the trees, so they decided not to use the system.’ They chose, in other words, to work inefficiently.
Do all fund managers absolutely have to be wired in today’s world? Robert Vaudry, director of operations for Morgan Stanley’s European equity research, believes that the answer depends on the kind of investor you are talking about. ‘Some fund managers are less time-sensitive than others.’ But Vaudry also believes that the days of printed research will rapidly fall away. It’s so easy to upload analyst notes for global access and it prevents fund managers from getting bogged down in paper too.
Morgan Stanley’s web site, for example, contains an icon labelled ‘Client Link’. Vaudry explains that ‘with their password, clients enter Client Link and can access everything we publish.’ Accessing the material is the least of it. ‘Users create their own profile,’ continues Vaudry. ‘For example, they may request all of our research notes, or everything we’ve prepared on technology stocks.’ Far from being impersonal, such electronic transactions are highly personalized. In effect the user enjoys a custom-made service and doesn’t have to worry about paper piling up or having to file it away.
The paperless research assessment coincides with the predictions of the UBS authors, who ‘forecast that within one year the majority of broker research will be delivered electronically, based on current usage and growth forecasts. Delivery will be through a combination of vendors and directly from the brokers. In the meantime the vendors and their products will change significantly….Although electronic distribution has…fallen short of delivering its potential, we expect this to change rapidly.’
Action stations
Some of the change will occur as more people are gently introduced to this alien world. ‘Until you have seen it in action, it is hard for many fund managers to truly appreciate the benefits of online information,’ says Vaudry. ‘In January we set up a stand at an equity conference and showed the system to investors. When they actually saw it, and could see a raft of data supplied by us on their favourite stock, they were overwhelmingly impressed.’
But where information technology is concerned, exaggeration comes easily. In fact, traditional research dissemination methods will not vanish overnight, and some are unlikely to disappear at all. ‘The telephone has not put an end to lunches, meetings and days out,’ notes Rod Salmon, retail analyst with Dresdner Kleinwort Benson. ‘Even with video, we still need to visit companies and personally speak to their people.’ That’s never going to change.
