The Asset Manager’s Guide to Using Market Research for Investment Strategy
Asset management firms need to make well-timed investment decisions on behalf of their clients that will grow their portfolio. Analysts play a pivotal role in researching potential investment options, conducting research on opportunities and determining when best to buy and sell assets.
Before making investment recommendations, analysts need to delve deeper into researching a company or industry. But how deep is deep enough?
As an analyst you research all the company or industry data yourself relevant to a potential investment. You may be reaching out to leading sell side analysts for the data and analysis or relying on senior experts in the sector to help gather the numbers and help make sense of the data. This analysis gets much more complicated if the company of interest has a global presence or has multiple products. How do you find experts spanning global markets and on an array of products?
There is nothing as good as on-the-ground, granular and reliable numbers to guide you with your research and trusted and unbiased market research is a perfect tool to help build a sound investment strategy. Often analysts are working with information from multiple sources with diverse definitions and scope, providing the additional challenge of granting comparable data. Market research provides the standardised and comparable data necessary to evaluate strengths and weaknesses of company operating environments and of the company itself as well as identifying key issues affecting investment decisions.
Numbers are worth a thousand words
A constant theme across all investment styles is that “numbers are worth a thousand words”. They show the big picture, delve into the minutest details of businesses and help analysts make the best use of their investment faculties.
As an analyst you are always seeking the right set of numbers. You find the financial numbers in the annual reports of companies or use trade sources for numbers on the current business success. Then you analyse and project the data in your financial modelling to seek the future potential of a company.
With the advent of new reporting standards and greater corporate transparency, the financials for listed companies are easy to access. However, in the private space, it is only available to an existing investor or a potential suitor.
The business data is also is difficult to source and verify. In my work in the industry I have constantly heard the travails of analysts struggling to find the right numbers. Either they are not able to get relevant data, or the data is not reliable. What exacerbates this issue further is that “all numbers are not created equal “, i.e. different sources or countries have different ways of reporting numbers, meaning that the same segments can be defined in different ways.
Make the market (research) work for you
Let’s say you are looking at Starbucks. Apart from their financial numbers, your in-depth research also requires you to know the following information about them and their competitors:
- How much do they sell in each market?
- Which product is doing well?
- What are their growth areas or segments?
- Who are they competing with (and in any new markets e.g. China)?
- How do they price their coffee versus competitors?
- How does the tie up for distribution of Ready to Drink affect sales?
- How many cafés are operating? How many do they plan to open?
- Where is the industry heading? What are the new trends in coffee?
- Which alternative drinks should they be most wary of, such as tea or kombucha?
- What is the growth of coffee sales through convenience stores?
One efficient solution to answer all these questions is to combine your expertise and the views of experts with credible market data.
Market research firms gather and verify data on multiple industries. They do this through a network of on the ground analysts who work with standardised definitions to provide global cross comparable data, with additional insight into the existing and future trends on the industries they research.
How does an analyst utilise market research?
Market research can help you identify, evaluate and monitor your existing and potential investments.
You get access to in depth insights into an industry, right up to the granular level of product segment and pricing. You can measure the market to study company and brand shares and explore the substitute, complementary and competing segments that might impact your investment. By examining distribution channels, you can look at the penetration of internet retailing and how it is impacting sales. And finally, by quantifying and analysing trends in the market, you can understand the reasons for the success of a product.
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