What is Equity Research?

Equity research is one of the most interesting and desirable careers in the financial services industry, but along with investment banking, it’s probably one of the most competitive.

How to Get a Job as an Equity Research Analyst?

New graduates and experienced professionals may seek roles in research but the number of positions is relatively small compared to corporate finance. Research may offer a slightly better work-life balance, although “slightly” is relative. Analysts, particularly junior analysts, can expect a lot of late nights, especially during earnings.

Equity research analysts may work on the buy- or sell-side of the finance business. Sell-side analysts work for brokerage firms and analyze stocks with the goal of making buy or sell recommendations. Brokerage firms rely on research as a marketing tool that they can provide for their clients. Buy-side analysts work for investment managers or hedge funds, researching investment opportunities to assist portfolio managers in making investment decisions. Pension funds, sovereign wealth funds, and endowments also employ buy-side analysts.

New graduates and experienced professionals may seek roles in research but the number of positions is relatively small compared to corporate finance. Research may offer a slightly better work-life balance, although “slightly” is relative. Analysts, particularly junior analysts, can expect a lot of late nights, especially during earnings.

Equity research analysts may work on the buy- or sell-side of the finance business. Sell-side analysts work for brokerage firms and analyze stocks with the goal of making buy or sell recommendations. Brokerage firms rely on research as a marketing tool that they can provide for their clients. Buy-side analysts work for investment managers or hedge funds, researching investment opportunities to assist portfolio managers in making investment decisions. Pension funds, sovereign wealth funds, and endowments also employ buy-side analysts.

Key Learning Points

  • Equity research professionals produce investment recommendations that are used on both the buy- and sell-sides of the financial services industry.
  • This field is extremely competitive, as there are relatively few positions available and the requirements are high.
  • A strong academic background and professional qualifications are very important, but candidates should be able to offer superb presentation, communication, and relationship management skills.
  • When looking for an equity research position, graduates and experienced professionals alike should network through industry events, pursue advanced qualifications like the Chartered Financial Analyst (CFA) designation, and take full advantage of professional platforms like LinkedIn.  Experience in and knowledge of a specific industrial sector can also be advantageous.

What Skills Are Needed?

It goes without saying that candidates should have a strong interest in financial markets, economics, and investing. An equity analyst should have a deep understanding of accounting and financial statement analysis, as these are fundamental to business valuation. Expertise in Excel is essential, as is skill in financial modeling. Analysts base recommendations on stock valuations, so knowledge of valuation methods, particularly the discounted cash flow valuation method, is also essential.

Analysts must produce a high level of qualitative due diligence on companies, which includes on-site visits and meeting executives, understanding a company’s business model and operational features, and assessing its competitive position.

Also critical to success as an analyst are writing and communications skills. Sell-side analysts in particular need to be strong writers as their work involves producing written reports for dissemination to clients. Every analyst needs to be able to articulate their investment recommendations clearly, and an analyst also needs to be skilled in interacting with clients. On the sell-side in particular, senior analysts spend much of their time marketing to clients while junior analysts do the heavy lifting of modeling and some report writing.

Is a Degree in a Financial Discipline a Prerequisite?

The vast majority of analysts have degrees in finance and/or MBAs, although there are instances where this is not the case. Sector experience may substitute for a finance background in some instances, while analysts in some sectors have related degrees. For example, analysts who cover the pharmaceutical sector may have medical degrees or advanced degrees in related fields. Junior analysts typically have a bachelor’s degree, while senior analysts will have an MBA and/or hold the CFA designation. An accounting qualification can also be extremely helpful.

Experience and Qualification in Equity Research

Potential Employers

As already mentioned, there are opportunities on the buy and sell sides. Many asset managers offer programs through which university graduates rotate through different departments and teams over the course of two years. Often, following the completion of such a program, graduates are offered a permanent position.  Investment banks typically have structured analyst programs that place graduates in divisions throughout the firm, including equity research. Other potential employers may include hedge funds, wealth managers, family offices, pension funds, or endowments.

In terms of compensation, equity analysts typically receive a base salary and a bonus based on both their own performance and that of the firm.

Helpful Tips

There are a couple of things an aspiring analyst might do. Networking is essential – attend graduate and career fairs, industry events, and events organized by professional organizations like the Chartered Financial Analyst Institute. It’s particularly important to network with analysts already employed in the field. Working with recruiters who specialize in placing analysts can also be helpful, and they can offer useful advice on job hunting.  LinkedIn, GlassDoor, and eFinancialCareers are also helpful sources for job leads and information on employers.

Typical Team Structure in Equity Research

See the typical team structure in equity research below. To learn more about the level of experience and professional qualifications typically required for each of these positions in equity research please open the attached file.

Equity Research Team Structure Image Final