Survey of 342 analysts by Aviva Investors found sell-side research to be flawed, short term and incomplete.
“Sell-side research has a significant influence on investors’ decision-making. But our study shows this research is often flawed,” wrote Euan Munro, CEO of Aviva Investors. “Analysts want to write long-term, in-depth research but in many cases, do not feel incentivised to do so or to incorporate sustainability issues into their work. Because of business conflicts, many analysts feel unable to express negative views about the companies they monitor. The research they produce is too often positive, short term and incomplete. This, in turn, contributes to a misallocation of capital.
Aviva advised fellow buy-side firms to purchase research from brokers whose analysts look at ESG factors. “In a post-MiFID II world it needs to be rational and commercial for sell-side research to consider long-term, wider sustainability issues,” according to Aviva’s whitepaper, ‘Investment research: time for a brave new world?’
Asset owners should press their managers to take a longer-term approach and require consultants to promote the integration of ESG matters in new manager searches, Aviva suggested.
Aviva also proposed that an element of analysts’ compensation be deferred for, say, two years and then paid according to the completeness and accuracy of their research. “Heads of research should develop a culture that encourages analysts to include long-term non-financial issues within research notes and rewards them accordingly,” the report said”