Market for information: evidence from finance directors, analysts and fund managers (Barker, 1998)

Question 1

Explain analysts vs fund managers

Answer 1

Analysts:
1. Analysts do not engage in the market directly.
2. Primarily aim to generate commission income => for their brokerage firm => their income tied to the success of the trading activity.
3. Good preparation of report => marketing tool => for communication with fund managers.
# Campbell et al (2008) - narrative reporting was not immediately useful for their forecasting models and written reports.

Fund Managers
1. Use the research and recommendations analysts provide => to make investment decisions.
2. Aim to => maximise returns => relative to a given benchmark.
# Pension funds have greater benchmarks than life assurance’s benchmark.

Question 2

Analysts service to fund managers.

Answer 2

1. Analysts focus on => informed analysis of specific companies, informed analysis of specific industry => value-added research.
2. Analysts believe that => fund managers seek advice that informs decisions making => rather than specific recommendations or forecasts.
3. Source of information used by analysts:
   #1 Direct contact with company => ranked highest.
   #2 Other brokers’ report: Lowest ranked.
   #3 Annual reports and accounts => not the most preferred

Question 3

Why direct contact with companies ranked the highest?

Answer 3

1. Timeliness
2. Allows analysts to ask direct questions
3. Gain a competitive advantage
4. Focus on forward looking issues affecting the market value

Question 4

Services provided by fund managers?

Answer 4

1. Portfolio management
   => Analyse investment options => select appropriate securities => and construct portfolios => that aligns with clients’ objectives and risk tolerances.
2. Risk management
   => Diversifying investments across different asset classes => industries and regions => to mitigate risks and optimise returns.
3. Client communication and education
   => Education clients on investment strategies => market trends => Portfolio performance

Question 5

Sources of information used by the fund managers

Answer 5

1. Formal meeting with senior company management => most vital source
   # Allows fund managers to understand => company strategy => and assess management’s ability to execute said strategy
2. Annual report and accounts => ranked second
   # Raw data is more important than processed information
3. AGM has no practical importance
4. Source of information direct from company ranking:
   # Personal contact with company => highest ranked