One of the most storied names in equity trading has expanded its research product. Weeden & Co., which built its business around trading difficult small- and mid-cap names, has added three fundamental analysts and four desk analysts in the last year.
For Weeden, the experiment has worked in gaining additional business. "So far, so good," said Lance Lonergan, co-president of Weeden & Co., one of the original third-market firms that traded on a net basis before fixed commissions were abolished in 1975.
One buyside trader commented that Weeden has grown its business with the firm by garnering additional research votes. "I think they are looking for a way to move the needle," he said, "and at a firm like ours, if they can get a few research votes from somebody who has a following with some of our analysts, it’s additive."
Weeden is not alone. Driven by the commission downturn last year, execution-only firms have flocked to research by either expanding their offerings or launching research to attract more order flow from clients. According to Greenwich Associates’ estimates, Wall Street saw a 13 percent drop in commissions last year, down to $10.5 billion.
Lonergan cautioned that the firm has been selective in its expansion, because offering research is a big commitment financially and strategically. It has no set game plan to hire a certain number of analysts this year. Nor has it hired research salespeople. Analysts have their accounts, and the 50 sales traders at the firm can distribute research calls, he said.
"The blueprint is to make good hires and listen to clients about where they need help, and fill in those holes," Lonergan said, adding that finding "the right person" is key.
One commitment in 2010 was hiring its new director of research, Brian Raabe, whose pedigree includes eight years in research sales at Sanford C. Bernstein. Raabe has since recruited analysts for new coverage in retail, consumer staples and medical devices.
Weeden is not new to research. For roughly two decades it has distributed research from the Leuthold Group, which provides quantitative analysis. Weeden also has a stake in the company. Since 1999, Weeden has offered fundamental research in the energy sector from Charles Maxwell. It later expanded the group with former Citi analyst Geoff Kieburtz in 2008 and again last year. The firm also offers a journal on money management from Kathryn Welling, a former financial journalist. But there is no question that the new hires signal a ramping-up.
The goal was to get analysts with experience in the industries they cover, Lonergan said. "We want analysts who walk the walk," he said. One year ago, three analysts covered 25 stocks; today, the expanded group of six covers 75. Among the four new desk analysts are a special situation and risk arb specialist, as well as others working on short-term trading strategies. Future growth of the research group, Lonergan said, "all depends on our success."
