Sarah Godfrey, Analyst, Edison.
Under the latest regulatory proposals from the UK and EU, the investment research landscape could change considerably. The Financial Conduct Authority (FCA) has indicated its support for proposals from the European Securities and Markets Authority (ESMA) to include a potential ban on funding research from dealing commissions in the MIFID II legislation currently being drafted.
What will this mean for investors? Currently there are broadly three types of investment research: buy-side, sell-side and independent, or commissioned, research. Buy-side research is produced by analysts at fund management companies to enable fund managers to assess current and potential holdings. It is normally for the exclusive use of the fund management company. Sell-side research (the business model most threatened by the proposals) is produced by investment banks and stockbrokers, whose principal business is selling securities. Research may be conducted on companies who are corporate broking clients of the sell-side firm, in which case there is a direct relationship, or on non- clients in whose shares the firm may trade.
Independent, commissioned research, such as that produced by Edison, is conducted by firms that neither buy nor sell securities. The research firm is engaged by a company to write analysis that may be used to inform existing investors, seek out new investors, or explain particular developments. This research does not usually give recommendations, but instead looks to give readers sufficient information to reach their own decisions, based on their circumstances and risk appetite.
Edison was founded in 2003 and is now one of the largest providers of commissioned research in the world, with nearly 450 companies (including c 60 investment companies) under coverage. It has offices in London, New York, Frankfurt, Sydney and Wellington. Our mission is to provide credible commissioned research to the widest possible audience. We also offer an Investor Access service, bringing both trading and investment companies together with potential investors such as advisers and wealth managers across the UK and elsewhere; as well as Edison TV, which distils some of our research content into an easy-to-access video format.
While firms such as Edison are engaged by the companies they cover, the research itself is fully independent. Edison’s equity research is based on in-depth financial analysis and modelling, while our investment company research draws on full and frank interviews with fund managers and takes in peer group and benchmark analyses to ensure an investment is represented in its proper context. We aim to give investors and their advisers the tools to make an informed investment decision. Our reports fulfil this objective by setting out clearly the key factors that differentiate an investment trust or company from its peer group. For instance, investors need to understand the fund manager’s approach, the use of gearing, dividend reserves and discount management policy: all matters that cannot be usefully reduced to a two-page data-driven factsheet. We strive to ensure our research is objective, insightful, financially rigorous, readable and timely. By focusing on research, we are free of the traditional conflicts faced by investment banks and brokers as we do not take positions in stocks, make markets, transact in securities or provide corporate finance advice.
Edison’s investment company research is distributed to wealth managers and IFAs by email from our own distribution platform, as well as being freely available on our website, We endeavour to make our research as widely available as possible, through partnerships with platforms like Alliance Trust Savings, Interactive Investor and The Share Centre, and by issuing an announcement on publication we can ensure research can be accessed from any outlet that carries a Regulatory News Service (RNS) feed. It is widely available via Google Search.
Investment trust boards are keen to engage with wealth managers and advisers, and investors are arguably better served with information than investors in open-ended funds: the report and accounts holds a wealth of detail, monthly factsheets can be informative and many trusts regularly publish a full list of holdings. Edison’s investment trust research aims to add to this, providing timely analysis and context but without making recommendations.