Reduction in volume of fundamental research

Finance Reporting and Analysis committee

Wednesday 7 December 2016

Resources allocated to fundamental research seen to be in general decline, particularly across the sell-side

Regulation and central bank policies expected to be the biggest influences on the amounts spent on research 


Research by CFA UK polling the views of more than 450 investment professionals, has highlighted a number of emerging trends and developments within the evolution of buy and sell-side fundamental research.

42% of respondents believe that the level of resource dedicated to fundamental research has declined over the last five years. 25% of respondents felt that resources had increased over the period, while 33% felt that there had been minimal change. Of those that felt that the volume of fundamental research had diminished, 48% felt that was because of decreased resources allocated by both the sellside and buyside, while 42% ascribed the reduction to the sellside alone.

The biggest contributory factors to the decrease in resources were deemed to be changing sell side economics (70%) and regulatory changes (66%).

Most (44%) respondents say that there has been little change in the returns available to fundamental research, but 32% of respondents believe they have diminished whereas 25% feel they have increased. Those that believe available returns cite the primary cause (53%) at central bank policies driving correlations.

So far, respondents believe that these changes have had little impact on the price efficiency of markets. They were practically equally divided as to whether market efficiency had changed for the better (30%) or worse (32%) over the past five years. Looking ahead, respondents are more optimistic with 33% of respondents believing that the price efficiency of markets will improve over the next five years compared to 25% who think it will worsen. When asked to select two factors that are likely to have the greatest influence on price efficiency of markets over the next five years, 50% selected regulation while 47% cited the move to passive investing.

Says Will Goodhart, chief executive of the CFA Society of the UK, “The regulatory-driven decline in the volume of fundamental research is not yet thought to have diminished price efficiency. That’s good news and suggests that the proposed regulatory measures – while uncomfortable for some – are appropriate and can be accommodated. Nevertheless, it will be interesting and important to observe how price efficiency is at least maintained over coming years in the face of continued central bank intervention and the increasing volume of assets managed passively.”


The CFA UK’s Financial Reporting and Analysis Committee devised a survey to investigate the accounting and research concerns of the society members. Following the inaugural research conducted in 2015, this second survey was conducted between 21 June and 7 July 2016 and received a total of 453 responses.