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Independent Research Group Targets Hedge Funds

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NEW YORK (–Independent Research Group, a unit of, has tailored its stock research to hedge fund needs and acquired clients in the industry.

“Hedge funds are currently a majority of our audience base,” said Research Director Paul Noglows. “We think in terms of providing research that is of value to them.” Interest comes mostly from managers of long/short equity funds, he added. The group has set coverage criteria so that it researches stocks that are likely to be of relevance to hedge managers.

One way it does this is by focusing on stocks that are typically small-cap to midcap, with US$200 million to US$2 billion market capitalization. “That size stock may not always be of interest to a more traditional portfolio manager but is of interest to hedge funds,” said Mr. Noglows.

“We’re looking for stocks that are under-covered by analysts. It is very difficult to bring value if you are the 38th analyst covering Oracle. But we can bring value to smaller names, where there are very few analysts covering the company. There are a lot of stocks out there today that get no coverage.”

His team looks for names that many investors might not know. “Hedge funds are often interested in less well-known stories,” he said. “That is part of our stock selection criteria.”

Another factor considered in deciding whether to cover a company is whether any action is expected in its price. “There should be movement in the stock, positive or negative, within three months of our initiation,” explained Mr. Noglows. If it appears that a stock is not going to move much, Independent Research typically looks for another name.

It generates investment ideas both on the long and the short side, which also appeals to the hedge fund mindset. Mr. Noglows said the group tries to bring managers a selection of good ideas over the course of the year. “We expect our analysts to be able to pick out a few good ideas at any given time, both buys and sells,” he said.

Current coverage is for five sectors, namely communications, consumer and retail, biotechnology, financial services and technology–all broadly defined. Some of the companies that received coverage include Arris Group Inc. and SeaChange International in the communications field, MGI Pharma Inc. in biotechnology and Commerce Bancorp in financial services.

Independent Research is a broker-dealer, and its reports are available on a commission basis–it gets a portion of the fee on its customers’ trades. Bear Stearns and Jeffries & Co. execute the trades. The brokerage operation received regulatory approval this spring .

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