Institutional Investor's Alpha Magazine - November 2007 - (Page 66)

Top Analysts Hedge Funds Pick the Top U.S. Analysts Software Heather Bellini UBS SECOND TEAM Telecom Equipment/ Wireless Philip Cusick Bear Stearns SECOND TEAM Macro Accounting & Tax Policy Robert Willens Lehman SECOND TEAM Technical Analysis Jeffrey deGraaf ISI SECOND TEAM John DiFucci Bear Stearns THIRD TEAM John Roque Natixis Bleichroeder Timothy Long BofA THIRD TEAM Adam Holt JPMorgan RUNNER-UP Ehud Gelblum JPMorgan RUNNER-UP Charles Di Bona Sanford C. Bernstein Christopher Senyek Bear Stearns THIRD TEAM Timothy Luke Lehman Washington Research Thomas D. Gallagher & team ISI SECOND TEAM Janet Pegg Bear Stearns Telecommunications Data Networking & Wireline Equipment Ehud Gelblum JPMorgan SECOND TEAM Telecom Services Simon Flannery Morgan Stanley SECOND TEAM RUNNER-UP Edward Garlich Jr. & team Stanford THIRD TEAM David Zion Credit Suisse Kim Wallace & team Lehman Philip Cusick Bear Stearns THIRD TEAM Economics Ed Hyman ISI SECOND TEAM Michael McCormack Bear Stearns RUNNERS-UP Tal Liani Merrill Lynch THIRD TEAM David Malpass Bear Stearns THIRD TEAM Nikos Theodosopoulos UBS RUNNER-UP David Barden BofA; John Hodulik UBS David Rosenberg Merrill Lynch RUNNER-UP Jeffrey Evenson Sanford C. Bernstein Nancy Lazar ISI survey, which he says demonstrates a clear correlation between trafﬁc trends and stock prices with a two-month lead time, has helped fund managers identify trade ideas in the subprime mortgage and homebuilding areas. Ransom says BofA is also examining its ratings system with an eye toward adding ﬂexibility to make shorter-term calls than the 12-month time frame on which analysts’ ratings are currently based. Citi has taken a more multistrategic approach to research. “We are focused on integrating our debt and equity efforts, where such combinations make sense,” says Jonathan Rosenzweig, Citi’s director of U.S. equity research. In September corporate bond analyst Itay Michaeli picked up coverage of automaker and auto-parts-supplier stocks, offering his views on both equity and debt securities in one report. “In an investment-grade world, a positive equity event could be a negative credit event,” says Michaeli. He adds that growth in the credit-default-swaps market also creates possibilities for investors. “Derivatives are the leading indicator for bonds and equities,” he explains, “and investors want to know what’s going on in those markets.” Though analysts are restricted to one-year time frames and ratings, clients want short-term color and investment options beyond the traditional buy, sell or hold. Derivatives specialist Mitchell Revsine joined Citi’s equity research team this summer with the mandate to wrap derivatives commentary around sector research. “My job is to come up with tactical options trades that leverage the views of the fundamental analysts,” says Revsine. “It’s a way to monetize intellectual capital.” The expansion of derivatives research, the collaboration among equity and debt analysts and the globalization of coverage reflect the changing needs of buy-siders as the lines between traditional managers and hedge funds blur. As long-only managers increasingly develop hedgefund-like products such as 130/30 strategies — which invest 130 percent long and 30 percent short — Wall Street firms have had to alter their research accordingly. Says 66 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2007 Lehman’s Linde, “About two and a half years ago, the business changed and equity research needed to evolve.” But it is not necessarily research directors’ efforts to come up with trade ideas that hedge fund managers value most. Of the 12 categories survey respondents were asked to rate, management access, industry knowledge and accessibility/responsiveness are fund managers’ top priorities, in that order; stock selection ranks tenth. “What can be frustrating about the sell side is the number of consensus calls I get,” says one New York–based hedge fund manager. “They add nothing and create a lot of noise. What’s valuable are models and out-of-consensus idea generation.” Such feedback has not been ignored by Street firms, which have radically decreased the time they devote to maintenance research in favor of efforts to generate new and fresh takes on situations or larger thematic reports covering more than one company or industry. “We push our analysts to come up with a weekly thought product because the buy side has to know you as a thinker,” says Lehman’s Linde. “The goal is to provide data and information that helps clients generate alpha for their portfolios.” In the new reality of sell-side research, the job of the analyst is still to have an opinion, and one based on solid modeling. But opinions and intellectual capital aren’t enough. Wall Street firms are seeking new ways to drive revenues around analysts’ work and to come up with trading strategies that can turn ideas into income. Says BofA’s Ransom, “As research directors we have to say, ‘You’ve done excellent research, so how do we monetize it?’” Be sure to visit www.alphamagazine.com for additional information on hedge fund managers’ most-valued analysts, as well as a list of the attributes of equity research ﬁrms that hedge funds prize most. You will also ﬁnd an index of hedge funds’ favorite researchers and an explanation of how we compiled the list. ON THE WEB http://www.alphamagazine.com

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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