Blue Gem Research is built upon the belief that we can make the market work better.
A structural bottleneck in the South African equity market is the reality that sell-side analysts are incentivized via allocation, trade volumes and related brokerage to cover large, liquid stocks. While this can add value to the market, the law of marginal diminishing returns implies that it adds less and less value as more and more analysts cover the same finite number of stocks (i.e. the Top 40 index on the JSE).
Even the few analysts covering stocks outside this Top 40 index are inadvertently pushed to cover the more liquid counters in this universe in order to effectively monetize their research through the related, generated and allocated trade.
The irony is that the very stocks that would benefit the most from being professionally researched are the very stocks that are also marginalized by these sell-side economics: the dynamic, growing, exciting small cap counters that fall just off this radar.
And so Blue Gem Research was founded to address this critical need in the local market and, by doing so, make our market work better for all participants.
The logic is simple. Research on the under covered small caps cannot really be monetized by brokerage. But the benefit of professional coverage is felt directly by the small cap itself. Hence why not charge the company being covered directly for the coverage and provide the research to the rest of the market for free?
This solves numerous challenges: (1) Investors and the general market can benefit from freely available professional research on these under-covered stocks, (2) the small caps can feel the benefit of professional coverage, and (3) the research is sufficiently monetized to justify the time, effort and expense in building and maintaining it.
Essentially, this is Blue Gem Research’s rationale.