Research Entrepreneurs: Nearly 40 percent of stocks in Europe lack coverage as a result of bank cutbacks...
From ValueWalk:
When the big banks exit a market niche, it turns out small, entrepreneurial hedge funds have been filling the gap with interesting results.
Big banks cutting risky trading operations
As the big banks cut back on their risky trading operations – that
are likely to become more risky now that markets are allowed to be so
easily manipulated – they are also cutting research on small and
mid-sized firms, known as small cap stocks.
A Reuters report
points out that 4 in 10 European stocks covered by bank analysts are
now without coverage as a result of bank employee cut backs. The
report, citing Reuters calculations, says that Europe’s 30 largest banks
have slashed 80,000 jobs in 2013 alone.
The cut in big banks research has created opportunity for
entrepreneurial hedge funds to play a common market role: when market
inefficiency occurs due to the lack of information, there is an
arbitrage play afoot.
While the example of Gotham City Research, which has initiated scathing activist short attacks on firms such as Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) and LET’S GOWEX
SA (BME:GOW) (OTCMKTS:LGWXY), centered on criminal fraud charges, big
banks research typically didn’t dive in this deep. Its research was
mostly used by larger hedge funds and focused on more traditional
issues, leaving fraud detection mostly to the more aggressive activist
investors.
With the absence of traditional bank research, however, other hedge funds are finding opportunity.
Big banks research to be replaced by hedge funds
“If it’s shrinking, that research is going to be replaced by independent research firms and hedge funds,
which are doing their own deep dive and explicitly investing behind
their ideas,” Soren Aandahl, head of research at activist investor
Glaucus, was quoted in the Reuters article saying....MORE