Forty-six percent of UK small and mid-cap investors say there is insufficient research available to help them make investment decisions, according to the Peel Hunt and Quoted Companies Alliance (QCA) small and mid-cap survey 2022, which was launched today.
Companies are broadly aligned on these views, with just over half (51 percent) disagreeing or strongly disagreeing with the statement that ‘the quantity of small and mid-cap research is high enough to attract investment into my company.’
The researchers asked both companies and investors why they didn’t feel the quantity of research was good enough, with investors pointing to Mifid II as an issue.
‘The regulation forcing us to pay for broker research has killed a lot of it and it specifically disadvantages boutiques that cannot afford it all. Yet the market needs smaller players to aid liquidity,’ says one.
Another investor comments: ‘Mifid II has meant research is spread over too broad a number of providers that require managing. We do not always have the time to follow all of these new entrants, such as paid-for research houses.’
Quality, not quantity
Although a significant proportion of both investors and UK small and mid-cap companies feel the quantity of sell-side research is insufficient, when it comes to quality, it appears things are improving.
‘Among investors, for the first time since this question was asked, those that perceive an improvement in the quality of research outnumber those perceiving a decline. Companies are also more likely to perceive an improvement rather than a decline,’ write the report authors.
Twenty-two percent of investors say the quality of research has improved slightly, while 3 percent feel it has done so significantly. This compares with 16 percent that say it has declined slightly, and 5 percent significantly.
On the company side, those figures stand at 21 percent that feel research on their firm has improved slightly (6 percent significantly) and 13 percent saying it has decreased slightly (4 percent significantly).
Commenting on the findings in a survey launch webinar this morning, Tim Ward, chief executive of QCA, said there had been ‘a stark improvement’.
‘We’re moving from a universe where everything is more or less getting worse to a post-Mifid environment where a substantial minority are now seeing a reversal of sentiment,’ he noted. ‘We’re seeing a post-Mifid equilibrium for research coming through.’
Steven Fine, chief executive of Peel Hunt and a panelist on the webinar, added that the turnaround had taken longer than expected, but questioned whether the reduction in quantity of research had come to an end.
‘The question really is whether we have bottomed out in terms of the amount of research?’ Fine said. ‘And is there likely to be more capacity taken out of the market? Are we at an equilibrium point where it’s probably the right amount [of research], and we can perhaps start to grow from there?’
While he said he believed there might still be room for further cuts, he added: ‘I don’t think it’s ever been more important to have a high-quality research product. I think it’s almost a prerequisite to being useful and finding relevant, interesting companies for investors to generate alpha from.’
Fellow panelist Georgina Brittain, managing director at JPMorgan Asset Management, described herself as something of a ‘lone voice’ on the topic in recent years, noting that for her, ‘quantity has never been the issue – and my inbox demonstrates that,’ she said. ‘It is only about quality.’
