by Paul Steen, Contributing Writer

Many newcomers to the marcomm space in financial services are often charged with interviewing and writing for portfolio/fund managers, analysts, strategists and traders. Rarely, however, are new communicators afforded a basic orientation on these roles. To help unlock the mystery, we’ll begin with a primer on buy-side analysts.

What Does a Buy-Side Analyst Do?

You’re a new hire at a well-known asset-management firm, and one of your first assignments is to spend 30 minutes with the firm’s top equity analyst and draft a piece targeting potential investors in a certain mutual fund. As you sit down to craft appropriate interview questions, you might wonder: Exactly what does a buy-side analyst do?

Likely, you’ll enter the analyst’s office and see him or her glued to a Microsoft Excel spreadsheet—hardly enough to answer your question. Fact is, there are different types of financial analysts for various industries, but I would like to shed some light on what an analyst in the buy-side finance industry does—most likely the type of analyst that you as a marketing communications professional will encounter.

The Landscape

The buy-side finance industry consists of money management firms such as pension funds, mutual funds, hedge funds, etc., that buy and sell securities for a profit. A buy-side analyst most likely holds a business degree in finance, accounting, economics, or a related field.  Oftentimes, in order for one to advance his/her career in this field, an analyst must obtain a Masters of Business Administration (MBA) and/or a Chartered Financial Analyst (CFA) designation.

The Analyst’s Job

Essentially, buy-side analysts research and analyze information to make recommendations to their own company’s investments—hence the term “buy side.” In addition, a buy-side analyst is charged with maintaining a constant and accurate awareness of both macroeconomic and microeconomic conditions affecting his/her company’s investments as well as the sectors and securities to which the analyst is assigned.  In order to have this acute awareness, a buy-side analyst needs to read the financial news on a daily basis to come to an understanding of the market as a whole.  Investments can be affected from news about the company one is invested in to current events in the political climate to the global economy.

An analyst in the buy-side equity market will be involved in researching, analyzing, and making assessments regarding the stock market with the overall goal being to identify attractive buying opportunities for a specific portfolio of stocks.  The analyst will typically focus on stocks emerging from companies in specific sectors of the economy, such as the healthcare sector.  In addition, an analyst may be assigned to focus on particular types of stocks, such as value-oriented stocks or those stocks known for their higher growth potential.

Part of an analyst’s workload will include the analysis of financial statements of publicly traded companies.  For example, to explore a possibly attractive stock to either buy or hold, if the firm already holds exposure to a stock in one or many of its portfolios, the analyst must study the raw financial data of the issuing company, including the company’s balance sheet, income statement, and cash flow statement, to name a few, in order to prepare forecasts used in making investment decisions. This data can help the analyst understand the “health” of the issuer, for one, as well as the potential performance of the stock in varying market conditions.

Further, the analyst must evaluate a stock’s own historic performance within that company’s economic sector as well as relative to the equity market at-large. This means that how well (or poorly) a stock has rewarded investors both within its sector (healthcare, pharmaceuticals, etc.) and relative to all stocks in a given stock “universe.” This information, while not an indicator of future results, helps give the analyst a more practical, real-world sense of the stock’s nature and potential.

Buy-side analysts will also use research from sell-side analysts, in addition to their own research, to make recommendations for their company’s investments. Sell-side analysts are typically individuals who work at brokerage companies.  The sell-side analysts do research and analysis on stocks or other securities; generally their research is made public.  They typically give ratings to stocks or other securities such as “buy,” “hold,” or “sell.”  Ultimately, buy-side analysts must decide how well their research and analysis coincide with their company’s investment strategy, as well as how the addition of the stock will impact the overall portfolio. For example, a firm that adheres to a long-term investment strategy for Portfolio A, or overall, might not consider a stock with only limited upside potential in the very short term as appropriate, because the stock would likely need to be “dumped” sooner than later. Further, if a firm touts low turnover for its portfolios (stocks are generally bought and held), such a short-term bet might not be appropriate, but for a very different reason.

An analyst can also be involved in researching, analyzing, and making assessments concerning the fixed-income market.  A fixed-income buy-side analyst will evaluate investment grade (lower risk) or high-yield (higher risk) bonds and often gives a rating to these bonds. Ratings reflect the likelihood that a bond issuer will repay its debt, in essence, otherwise known as credit risk.  An investment-grade bond is rated higher than, say, a high-yield (junk) bond, because it is considered “safer” when it comes to credit risk.  Lastly, the analyst must understand the fundamentals of a company, such as cost drivers, balance sheets, income statements, and cash flow statements to perform his/her job.

While these responsibilities are largely quantitative, perhaps the most important qualitative skill a buy-side analyst can offer is the ability to take complicated, numerical information and present that info in a format and context that is easily understood.  Great presentation and reporting skills are a necessity in order for a buy-side analyst to be successful on the job.  Ultimately, an analyst must be able to communicate concisely and in a manner that stimulates action.

 

Author’s Biography:

Paul Steen is a Minnesota native from Eden Prairie.  He received a Bachelor of Arts degree in financial management from the University of St. Thomas in December 2012.  He is currently working for the Regulation E department at TCF Bank in Minneapolis, MN.