Australian analysts cover approximately 450 ASX listed companies.
Unfortunately, when reviewed individually many analysts and stockbrokers have difficulty beating the market average. Their stated “Final Recommendation” provides no advantage to investors.
About Consensus Data
Several firms in Australia collate ASX research reports published by stockbrokers and generate a “Consensus Recommendation” for each company. These data feeds are then on-sold to institutional clients for distribution.
There's a couple of disadvantages to these databases:
1. Lack of depth: Smaller-cap companies are often covered by only one analyst. By default the single rating becomes the “consensus recommendation”.
2. Unknown update times: Analysts often stop coverage on a company without notifying the market. This leads to outdated consensus data.
Market Index tries to counter these pitfalls by:
• Minimum broker number: A strong buy requires at least 3 covering brokers.
• Size Filter: Only the largest 150 companies in our consensus database are listed below. Analysts usually review their analysis on large bluechips more often than small-caps.
• Freshness cut-off: Ratings older than 60 days are ignored.
Market Index sources data from FNArena.
FNArena monitor 8 major broking firms daily. All open recommendations are documented using a 3 tier scale: Buy, Hold and Sell.
How is the “Consensus” figure derived?
Market Index gives each recommendation a score:
Buy = 3, Hold = 2, Sell = 1
The total is divided by the number of brokers.
A "Strong Buy" requires a minimum of 3 brokers and a "Strong Sell" at least 2.
These levels are arbitrary and were selected to make skimming the list easier.
How to use the data
Consensus data should only be used to uncover companies that might warrant further investigation. Analysts often look solely at a company's fundamentals while ignoring market sentiment and momentum. Don't base any investment decision on the data.