Regionals and Independents Top Sources of Small Cap Research

New York, NY - 10 September 2007

Regional investment banks and independent research firms are the top providers of equity research on small capitalization stocks in the U.S., according to Integrity Research, a specialist research firm covering the investment research industry.

In its latest edition of ResearchFocus, which reviews the research industry, Integrity identified the research providers with the greatest small cap prowess. The five most highly valued firms in the study were Robert W Baird & Co., William Blair & Co., Sidoti & Company, Friedman Billings Ramsey, and Canaccord Adams, which each received Integrity’s 2007 Top Pick for Small Cap Research designation. Evaluations of the research providers are based on inputs from institutional investors and Integrity’s own assessments.

“Small cap investors look for seasoned analysts who know their companies inside out and have expertise in their sector. They particularly appreciate research providers which provide them with access to company management and have demonstrated an ongoing commitment to small cap research,” said Michael Mayhew, founder of Integrity Research and lead analyst on the study.

Despite shrinking analyst coverage, over 223 sources of investment research on small capitalization stocks remain in the U.S., Regional investment banks and independent research firms have helped to fill the void left by declining coverage of small cap stocks by Wall Street analysts.

“The research market is resilient. As the largest investment banks cut back their coverage over the last five years, alternative sources of research have emerged,” said analyst Will Greene, who co-authored the study.

Demand for small cap research has increased as small cap assets under management have grown from $86 billion in 2005 to $102 billion in 2007, according to Greenwich Associates. Meanwhile, the supply of Wall Street small cap research has declined as analyst coverage and small cap IPOs have shrunk. Approximately half of all small cap companies have no analyst coverage; those that do are usually covered by only a few analysts.

Although there are alternative sources of small cap research, pressures on research providers continue. Regional investment banks include some of the best current sources of small cap research because they tend to cover smaller companies more closely and consistently than the largest investment banks. However, the equity departments of regional investment banks are under pressure as institutional trading flow is consolidating to fewer counterparties and shifting to electronic networks.

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