Equity Analysis & dealing

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Equity Analysis & Dealing 2000

Feedback from twenty-seven institutions, representing over $100bn in Australian equities under management, was utilised in the compilation of this Equities Report. Information was compiled across 20 industrial, 7 resources and 3 macro sectors, as well as research sales and sales trading, with an intellectual capital focus. That is, when conducting the research, emphasis was placed more on the individual analysts and dealers and their relationships rather than the broking houses and their market shares.

The information gathered was then weighted according to the amount of domestic equities under management (DEUM) of each institution, and processed on the aggregate firm level according sector market capitalisation. Comparisons between broking houses are provided using raw and weighted scores.

The object of this report was to reflect to some degree an aggregate panel position across the major institutions blended with a stronger focus on the various houses' intellectual capital.

The institutional weighting factors employed effectively multiply institutional input at the analyst and broking house level by a score ranging approximately from 1 to 15. An average institutional weighting factor is therefore 100/27=. Therefore the analyst rating the highest with the largest institution would score approximately 15 points out of 100. The "WGHTD" column would thus record 15 points for that analyst. The "% WGHTD" (percentage weighted) column translates this into a score out of the possible score for that sector, reflecting the absence of some institutional feedback for that sector. In other words the analyst may score 80, yet this could be out of a total of 90 obtainable points, and needs to be converted to a score out of 100 for cross-sector comparison. Some institutional feedback may have been unobtainable in some sectors for a variety of reasons, such as non-coverage of or lack of interest in a particular sector, a lack of usage of broking research in that sector, etc.

The market capitalisation weighting factors take the "percentage weighted" sector scores by broking house and multiply them by the relevant market capitalisation weighting factor for that sector. For instance Banks, being the largest market capitalisation sector, has a weighting factor of 12.63. Therefore a broking house with a score of 90% in Banks gains an overall weighted score for the sector of . Compare this with a broking house gaining 90% in Chemicals & Healthcare, where the weighted score would be , and the effect is to greatly emphasis the larger sector when comparing one broking house to another. Turnover is another relevant weighting factor here, and is available on request.