Understanding a Company’s Busine ...
Understanding a company’s business model is the first step in conducting an industry... Read More
Effective industry analysis helps to provide a framework for company analysis.
Question
Which of the following market participants is unlikely to benefit from industry analysis?
- A technical analyst tracking price movements and investing across a wide variety of industries.
- A loan underwriter at a bank performing due diligence in response to a loan application received from a startup app development firm.
- A data analyst working for an investment consulting firm working on a performance attribution analysis of an actively-managed fund within a client’s portfolio.
Solution
The correct answer is A.
Since the technical analyst invests in different industries, investment decisions are made based on historical price movements and not industry fundamentals.
Options B and C are incorrect. The loan underwriter can benefit from industry analysis to better understand the risks of lending to the app development firm, and the data analyst can extract the amount of outperformance or underperformance attributable to industry or sector selection.