How different is a fixed income analyst position from an equity analyst position? Are there differences in pay and bonus structure? I’m assuming both sides are going to do the same financial statement analysis. However, the end result, obviously being that the fixed income analyst would recommend the corporate bonds and an equity analyst position would recommend the corporations common stock. Also, I would venture to say that fixed income analysts focus on the downside, whereas, equity analysts focus on the upside… What are the opportunities for fixed income analysis and equity analysis? Are there more equity positions than fixed income and/or vice versa? Thank you!
Equity is always sexier. But there’s nothing wrong with bonds. Equity professionals appear to have higher compensation on average. Opportunities include doing fixed income or equity analysis, either for life or as a stint before becoming a portfolio manager of … bonds or equities.
Are you saying I’m not sexxy? It really depends on what part of the credit universe. In the high grade space, we take a more macro look. A few cents of EPS miss or beat don’t matter. The underlying broad trends do. On the high yield side, its much closer to equity as you really have the opportunity to partake in the upside of a company. I personally prefer the debt side, but at the heart of it the work is close.
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FIAnalyst: As I have just started studying for the CFA, I’m sure a lot of these questions will be answered in the coming weeks. Is there still a lot of financial statement analysis being a fixed income analyst? If you meet/talk with management, customers, suppliers, do you still ask a lot of the same questions? Reason I’m asking: equities have always been of interest, but not so much in bonds. However, I’ve come across an opportunity as an Investment Analyst for a company here in Denver and I don’t know if I’d be interested in the fixed income side yet…
They don’t say the best equity analysts are actually FI analysts for nothing.
I have just started as a FI analyst (buyside). My colleagues complain what easy life equity analysts have: They have only one common instrument (equity). Other things that make it more interesting: - There is less liquidity. - Bonds have a definite life span unlike equities. In the end, a matter of choice. Some in our group were equity analysts before and vice versa.
Fixed income involves a lot more math; equity a lot more accounting…
Skiloa: Could you expand on the math vs. accounting comment? I thoroughly enjoy math. Accounting, not as much…
I think the idea is that as an equity analyst, you are going through financial statements much more carefully to try to estimate EPS. Small differences in EPS have a much larger effect on the stock price than they do on bond prices, because as long as EPS is positive, bondholders are going to be getting their principal and coupon payments. So bondholders still need to look at accounting info, but just to make sure that everything is more or less ok (high yield bonds are a different story, because the equity analysis is more important as an early warning indicator of default). In fixed income, you have (assuming no default) a bunch of payments at known times and you also have a yield curve and spot curves to be estimated in order to figure out the present value of those payments and compare with market prices. In this case, you’re doing a lot more math to estimate what spot rate to use for a payment at time T, what the appropriate credit spread is for the level of default risk, etc… The fact that fixed income payments tend to be fixed, whereas dividend payments are much more unpredictable means that there are more ways to do mathematics before you get into the yuckiness of stochastic calculus. There are more ways to get closed-form analytic solutions in FI than in the equity world, because more of the fixed income income stream has been defined beforehand and so you can do more traditional mathematical operations without having to get into Wiener processes, Ito’s lemma, and such.