Worst ER Sector?
While there are several interesting ones (TMT, Internet, Fintech) I am curious on your take on the worst ER sector to cover.
This could mean:
-- Least interesting (subjective but still, paper & packaging anyone?)
-- Worst exits
-- Lowest comp ceiling
Not gauging by sweatiest, since oftentimes these are for coveted roles that have strong buyside exits (internet).
Thoughts?
-- Least interesting and worst exits: Paper and packaging, utilities, health care services (hospital, senior living facilities, etc), anything oil and gas, machinery (Caterpillar and Deere ...), banks / insurance, shipping (most marine shipping analysts have been laid off anyways), metals and mining (sorry the last one might be a growth sector right now, give it time tho)
Comp ceiling ties to deal flows, so you know the hot sectors.
Why have most maritime shipping analysts been laid off?
If I have to guess, probably net capital outflow from the sector so no banking activities. Most names have not been value creating entities so market cap has gone down over time, which means less trading commission.
Cap goods are actually very nice from a L/S perspective
I can imagine one just shorting and longing CAT to glorious wealth (at right part of the cycle), so no disagreement there.
How is financials one of the worst? Could you please explain? I thought they would understand the economy, IR, yields, etc. better.
The accounting is completely different for banks and insurance companies. They are a gauge of the general economy but yet you will not understand how another industry works via following banks or insurance companies. Not to mention they are getting disrupted by fintechs (think alt banks like SoFi, Chime, and stuff).
I have to highly disagree about oil and gas.
The modelling for E&Ps is arguably the most complex among any sector (except maybe FIGs). Assets are modelled from the ground up and requires a deep analysis of TONS of data. This makes the research actually useful for buy side as analysts might not have the time or knowledge to analyze these companies effectively. While this creates a specialization limitation if you move sectors, you'll easily be able to learn the more simplistic models.
The volatility of equities with commodity swings in the industry makes for a lot of interesting trading opportunities, meaning your investment ideas are directed to more interesting clients in fast money and hedge funds unlike in utilities or industrials talking to pension funds all day about a 12% return on your target. This volatility also helps with the S&T desk.
Another aspect is the charade of the "energy transition". A lot of dead money and destroyed capital in the past few years on failed "alternative energy" companies when O&G was out of vogue and Wall Street briefly thought we were going to transform the entire energy industrial base of our global civilization with negative NPV renewable energy projects in three years. The IEA and political activism are still shouting from the rooftop, but the negative returns across renewables speak for themselves. Oil and gas has surpassed all demand forecasts since covid and my point is the industry is going no where so there is staying power (despite what some politicians might have you think).
Would you throw managed care into this?
Metals and Mining been growing for a decade & the great green energy transition is still just on the horizon. The fact that copper needed a protest in Panama to pop and aluminum needs a ban on Russian metals to pop tells you something about the fundamentals lol.
Healthcare services is actually really hot right now - lots of companies blending into the digital health/HCIT space.
Oh yeah, like ONEM and stuff.
are REITs a good sector?
Energy sucks the most imo. Tech/Consumer/Healthcare or bust
Excuse me, it's called "Energy Transition" now (still ShitCos).
Poor analysts
Chemicals, just anything highly specialized and somewhat niche (semis and gaming are great industries but tough transition to a generalist buyside role). Financials and insurance have a bit of the same issue too.
I tend to think the very broad sectors - internet, tech, business services, most of industrials, software, consumer, retail, healthcare services are pretty good places to be.
Financials are by far the worst, especially banks, you can only be depressed by covering this sector and being yourself in a bank (not one day without hearing about restructuring, fintech will kill you all...). One good thing with insurance, nobody really understand (and certainly not an equity analyst, even former actuary) how they make money, so you can really bullsh*t hard and as nobody wants to cover this sector it's usually a good hiding place.
Interesting view, would be good if you can share few more points about insurance sector if you are in it. I like Warren Buffett's point on it and how they uses excess cash for further investments.
Why do you think gaming isnt great? Isn't it just effectively consumer discretionary?
Hows A&D for buyside exits?
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