What Does an Equity Researcher Do? (With Qualifications)
Updated September 30, 2022
Equity research is the study of a business and its market to decide whether to purchase, sell, or hold investments. An equity researcher typically has varied duties, from analyzing investments to interpreting financial data and trends. By learning more about an equity researcher's role, you can understand why they're essential in business environments. In this article, we answer the question "what does an equity researcher do," discuss the qualifications of equity researchers, outline an equity report's sections, and cover common questions and answers about equity research.
What does an equity researcher do?
Learning the answer to "What does an equity researcher do?" can help you determine whether their duties interest you. An equity researcher analyzes investments to help financial professionals or investors make informed decisions. They use their math and finance skills to predict an investment's outlook from statistical data and recent market activities. Equity researchers may also be responsible for developing investment models and screening tools to reduce risks. For example, suppose an investment bank wants to buy more shares from a software corporation. They may require an equity researcher's services to determine whether to continue with their plans.
Here are other duties and responsibilities of an equity researcher:
Understanding a client's financial goals, operating procedures, and investment models
Managing client financial requests
Collaborating with financial professionals, such as investment bankers and financial analysts, to recommend investment actions
Comparing domestic and foreign stock options to understand trends
Creating algorithms that identify profitable investment opportunities
Qualifications of an equity researcher
If you're considering a career in equity research, you can review the following qualifications to enter this field:
You typically require a bachelor's degree in finance, economics, or accounting to work as an equity researcher. Enrolling in an accredited university program can help you learn the fundamentals of macroeconomics, financial markets, and economic planning. Your coursework may also include economic and investment theory. Alternatively, you can study math or computer science as your major and economics, finance, or accounting as minors. Regardless of your chosen program, a bachelor's degree typically requires four years of full-time study.
After your undergraduate program, you can consider a master's degree in quantitive finance or business administration to qualify for more opportunities. A master's degree in these fields typically takes 18 months to two years of full-time study to complete.
During your undergraduate program, it's essential you develop hard and soft skills that can help you succeed in equity research. Aside from research skills, here are other qualities of successful equity researchers:
Analytical thinking: Improving this skill can help you evaluate the credibility of financial data you collect and make rational conclusions after investment analyses.
Financial literacy: Reviewing financial statements, market reports, and investment portfolios are essential duties you may perform as an equity researcher. Developing financial literacy skills can help you estimate an investment's future performance and predict changes to a company's earnings statement.
Computer literacy: Working as an equity researcher typically involves gathering data from multiple sources for analyses. Improving your ability to use data manipulation software and data-storage programs can help you work more efficiently.
Attention to detail: Identifying financial patterns and trends typically requires being detail-oriented.
Communication: Effective communication skills are critical because they can help you explain financial decisions and results to portfolio managers verbally or in writing.
Many employers seek candidates with experience in the financial services sector. For example, you might be an ideal candidate for equity research positions if you have data analysis experience. It's also essential to have experience interpreting equity data and using systems or tools that aid investment workflow. You can gain relevant experience through internships or cooperative education programs during your undergraduate program. As you gain more experience and prove your research abilities, you can apply for more positions with greater responsibilities.
Certifications and continuing learning
Becoming a Chartered Professional Accountant (CPA) or Certified Financial Analyst (CFA) can make you more employable. These designations from CPA Canada and CFA Institute can show your equity research and financial analysis expertise. You can also consider taking finance and computer modelling courses online to improve your skills and learn more about investment opportunities.
Sections in an equity research report
Writing equity reports is an essential responsibility of an equity researcher. This document enables them to share their findings with upper management and portfolio managers. Here are the essential sections they typically include to explain their data, research, and recommendations:
This section covers an industry's trends and competition. Equity researchers typically use management methods and strategy frameworks to review market and data trends. For example, they may conduct a political, economic, social, and technological (PEST) analysis to understand market factors and learn how these components can affect an investor's risk.
While investors typically want to know about a stock's financial data, they may also request information about a company's management team. Descriptions of a company's vision and developments can help financial decision-making, providing insights into its competency and reliability. Many equity researchers have more access to a company's management and may ask direct questions to convey this information to investors.
This section analyzes an investment's performance by comparing it with historical data and an equity researcher's expectations. For example, a stock increasing in value can show it's worth an investor's money. Writing about an investment's financial results typically involves examining and creating charts and graphs.
This section covers an equity researcher's predictions about an investment's future activity. Here are the two approaches they can use for forecasting:
Top-down approach: This style involves examining an industry's size, growth, and pricing before determining a company's expected shares and revenue.
Botton-up approach: This involves forecasting a company's revenue and influencing factors, such as customers and selling quantity. Then, equity researchers examine the business and industry.
In this section, an equity researcher uses their forecasts to discuss a company's valuation. They may examine multiple sources of a company's financial data to reach a rational conclusion. For example, suppose a client is considering purchasing stocks of an emerging company. Equity researchers may use the company's income statement, balance sheet, and cash flow statement to value it.
The last section provides expert advice to stakeholders on whether to purchase, sell, or hold an investment. In their recommendations, equity researchers typically provide an expected target price for an investment over a future period. Because their financial advice is typically from extensive research, equity researchers are often a reliable information source for potential investors or clients.
FAQs about an equity researcher's role
Here are answers to helpful questions about an equity researcher's role:
What is the difference between an equity researcher and an investment banker?
While equity researchers and investment bankers are both financial professionals, you can differentiate them by their job functions. Investment bankers provide financial advice to corporations and help them raise funds. They may issue stocks, negotiate mergers and acquisitions, or organize a company's sale. Equity researchers focus on providing financial recommendations after analyzing a company, its investment, and the industry.
You can also differentiate investment bankers from equity researchers by their education. An equity researcher typically earns a CFA designation because this certification can provide useful insights for investment analysis. An investment banker typically earns a Master of Business Administration (MBA) because their role is often more business-oriented.
Related: A Guide to Finance Careers
What tips can help you succeed in equity research?
Here are the best practices to help you advance your career in equity research:
Connect with other equity researchers to share ideas and research sources.
Consider attending equity research conferences and workshops.
Consider writing equity research for portfolio management journals to share your knowledge.
What are the work conditions for an equity researcher?
Equity researchers typically work regular nine-to-five hours. They spend most of their time gathering data and performing financial analysis and modelling using computer systems. While they often have functional schedules, equity researchers may have strict deadlines when covering a time-bound stock or performing their duties during earning seasons.
What fields are similar to equity research?
Aside from investment banking, here are other fields related to equity research:
Asset management: the practice of developing, operating, maintaining, and selling assets
Portfolio management: involves building and overseeing investments that can help investors meet their long-term financial goals and risk tolerance
Management consulting: the practice of helping organizations to improve their performance by providing expert advice to operational and financial issues
Please note that none of the companies, institutions, or organizations mentioned in this article are affiliated with Indeed.
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