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Royal Bank of CanadaNATHAN DENETTE

When a new merger or financing is announced, portfolio managers want to know exactly what it means for their fund. Inside the brokerage houses of Bay Street, an army of research analysts springs into action, crunching the numbers to give them the answers.

But with the availability of so much financial data from sources such as Bloomberg and Thomson Reuters - and even the increasing sophistication of free sites like Google Finance - institutional investors can easily do most of the financial analysis they need by themselves. So do sell-side research analysts still matter? And if so, what have they done to keep themselves relevant?

Royal Bank of Canada's capital markets unit is one of the firms betting that good research is as vital as ever. In the past few years, the firm has hustled to bring on good analysts, such as energy analyst Greg Pardy, banking analyst André-Philippe Hardy and Paul Quinn, who covers paper and forest products. In 2010, that focus paid off.

For the first time, RBC Dominion Securities' equity research team is ranked No. 1 one in Brendan Wood International's annual survey of Canadian equity analysts. BMO Nesbitt Burns, which had held down the top spot for 29 years in a row, came in second, followed by the other four broker-dealers controlled by Big Six banks: TD Securities, CIBC World Markets, Scotia Capital and National Bank Financial, which tied with Canaccord Genuity.

RBC's ascendance in the survey shows that asset managers notice the analysts who come up with ideas and analysis that foster better investment decisions.

"It's really been a relentless drive to build up the best product that we possibly can," said Richard Talbot, co-head of research at RBC. "There's no one flashpoint that occurred over the last 12 months."

To be relevant today, analysts need to get in front of the news, as opposed to writing "maintenance" research, which simply requires commenting on what a new press release means, Mr. Talbot said. "We also want our analysts to have a view, to make a call even if it's against what the rest of the market's thinking," he said.

For instance, analysts may predict the effect of a takeover, as CIBC World Markets analyst Rob Sedran recently did when he analyzed what could would happen if Bank of Nova Scotia took sole ownership of CI Financial.

In addition to its external hires, Mr. Talbot said RBC has tried to build a research team that junior analysts want to grow with so that they aren't lured away by competitors. A big tenet of that plan has been promoting from within.

The TopGun analyst survey is a closely watched piece of research on Bay Street conducted by Brendan Wood International, a performance consulting firm that gives competitive intelligence and advice to investment banks, corporations and professionals who work in global markets.

While the Canadian banks dominate the survey, the smaller dealers are nipping at their heels as they try to expand their presence through strong research.

Bold Plans

Cormark Securities is a prime example. Recently, the dealer has made it clear that it means business by hiring some top stock watchers, nabbing technology analyst Richard Tse and transportation analyst David Newman from National Bank Financial. Cormark also beefed up its mining coverage, though that move isn't as surprising because the firm is known for being a player in that sector.

In the future, "we don't want to be just commodity driven," said Susan Streeter, Cormark's managing director of institutional equity research.

The recent plan is a bold one because attracting high-profile analysts is an expensive game. By playing it, the firm is betting that research in new areas will attract more trading activity and deals.

However, it isn't as though Cormark is trying to buy all of its research strength from competitors, Ms. Streeter added. Some existing analysts also earned high marks in this year's survey, such as Sarah Hughes, who covers industrial products.

Yet while the banks and investment dealers build these teams on the presumption that research is still important, it's their clients who ultimately determine if that's true. Fortunately, it seems that most asset managers feel that good sell-side research is still valuable.

Mile Wide, Inch Deep Teams

"Sell-side analysts are almost an extension of our team," said portfolio manager Craig MacAdam of Aurion Capital Management, a Toronto investment counselling firm with some $4-billion in assets under management. The firm invests in a number of sectors, but doesn't have the in-house analysts to drill into the numbers in all of them, he said: "We're a mile wide and an inch deep."

Still, he made it clear that not every sell-side analyst suits Aurion's needs. "There are a lot of guys who try to talk to us and don't understand the way we manage money," Mr. MacAdam said. Aurion sees potential in short-term growth stories, so its managers like small nuggets of information that can spur a quick trade - what Mr. MacAdam described as "the incremental pieces of information over and above the models."

Should research stay important in the years to come, Canadian firms will likely need to broaden their focus to global investors who watch Canada's mining and oil and gas assets. RBC has begun catering to these clients by expanding its research operations, particularly in Europe and the U.S.

Now that the firm has the top spot, however, expanding comes with a big risk. "Our challenge is to maintain the highest quality while we grow," Mr. Talbot said.

The top guns



Each year, Brendan Wood International compiles a survey of Bay Street's top equity analysts. While new names often appear, the following analysts have been consistently top-ranked:



Tanya Jakusconek: National Bank Financial, large-capitalization precious metals - Ranked #1 nine out of the past 10 years



Sam Kanes: Scotia Capital, chemicals and fertilizers - Ranked #1 nine out of the past 10 years



Perry Caicco: CIBC World Markets, merchandising - Ranked #1 10 years in a row



Peter Haynes: TD Securities, index analysis - Ranked #1 since the category was first included in 2004

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