Third-Party Research

Starmine and Refinitiv Information

Understanding the Equity Summary Score Methodology

The Equity Summary Score provides a consolidated view from a number of independent research providers (IRPs) on the Plynk mobile app. Historically, the maximum number of providers has been from 10 and 12. However, some stocks are not rated by all research providers. Since the model uses a variety of ratings to arrive at an Equity Summary Score, only stocks rated by four or more firms have an Equity Summary Score.

As discussed in detail below, this single stock score provided by StarMine from Refinitiv is focused primarily on building quantitative factor models for institutional investors. It is calculated by normalizing third-party research providers’ ratings distributions (making them more comparable) and weighting each provider’s rating in the final score based on historical accuracy. Equity Summary Scores for the 1,500 largest stocks by market capitalization are force ranked to help ensure a consistent ratings distribution. This means that the model will provide a diversity of scores, thereby assisting investors in evaluating the largest stocks (in terms of capitalization), which typically make up the majority of Plynk investors’ portfolios. Finally, smaller-cap stocks are then slotted into this distribution without a force ranking, and may not exhibit the same balanced distribution. StarMine from Refinitiv updates Equity Summary Scores daily based on the ratings provided by the IRPs after the close of each trading day.

How are Equity Summary Scores calculated?

The StarMine model takes the multiple standardized ratings of the research providers and creates a single Equity Summary Score using the following steps:

1. Normalize – Look at the research providers’ buy and sell ratings distributions to understand which ratings are scarce and, therefore, more important.The distribution of ratings from each of the IRPs are normalized to make them more comparable with each other (for example, balancing an IRP that issues a large number of buy recommendations but few sell recommendations with an IRP that does the reverse). StarMine adjusts for this by overweighting “scarce” ratings and underweighting “plentiful” ratings. By normalizing the distribution of ratings, the model can recognize the "scarcity value" of ratings that are infrequently given, providing additional information to the model.
2. Weight – Look at the 24-month relative firm/sector ratings accuracy and use that information to determine which firms’ ratings have the most weight in the aggregated Equity Summary Score.StarMine runs its sophisticated scoring system to facilitate a fair comparison of research provider recommendation performance across widely disparate industries and market conditions. The StarMine Relative Accuracy Score for each research provider uses the past performance of the provider’s individual stock recommendations with that of its peers in each sector to calculate a statistical aggregation ranging from 1 to 100. It is calculated over a 24-month period based on the performance of a research firm within a given sector against its peer set of other firms in the market rating stocks in this sector. The calculation is analogous to a “batting average;” that is, how often stocks rated “buy” outperform the market and stocks rated “sell” underperform the market as a whole. To get a score higher than 50, the industry-relative return of a firm's recommendations within a sector must, when taken together, be greater than those of the median provider. The StarMine Relative Accuracy Score is used in the Equity Summary Score model to help weight the individual provider stock recommendations in the aggregated Equity Summary Score.
3. Calculate – The normalized analysts’ recommendations and the accuracy weightings are combined to create a single score. For the largest 1,500 stocks by market capitalization, these scores are then forcibly ranked against all the other scores to create a standardized Equity Summary Score on a scale of 0.1 to 10.0 for the 1,500 stocks. This means that there will be a uniform distribution of scores provided by the model, thereby assisting investors in evaluating the largest stocks (in terms of capitalization), which typically make up the majority of individual investors’ portfolios. Finally, smaller-cap stocks are then slotted into this distribution without a force ranking, and may not exhibit the same balanced distribution.

The Equity Summary Score and associated sentiment ratings by StarMine from Refinitiv are:

0.1 to 1.0: “Very Bearish”
1.1 To 3.0: “Bearish”
3.1 To 7.0: “Neutral”
7.1 To 9.0: “Bullish”
9.1 To 10.0: “Very Bullish”

Other important model factors:

• An Equity Summary Score is provided only for stocks with ratings from four or more IRPs.
• New research providers are ramped in slowly by StarMine to avoid rapid fluctuations in Equity Summary Scores. IRPs that are removed from Plynk will similarly be ramped out slowly to avoid rapid fluctuations.

Notes on using the Equity Summary Score:

The Equity Summary Score is a rating of relative—not absolute—forecasted performance. The StarMine model anticipates that the highest-rated stocks—those labeled “Very Bullish” as a group—may outperform lower-rated groups of stocks. In a rising market, most stocks may experience price increases, and in a declining market, most stocks may experience price declines.

• Proper diversification within a portfolio is critical to the effective use of the Equity Summary Score. Individual company performance is subject to a broad range of factors that cannot be adequately captured in any rating system.
• Larger differences in ESS may lead to larger differences in performance. The sentiment rating labels should only be used for quick categorization. An 8.9 “Bullish” score is closer to a 9.1 “Very Bullish” score than to a 7.1 “Bullish” score.
• For a customer holding a stock with a lower Equity Summary Score, there are many considerations (for example, taxes) that may be much more important than the Score.
• The Equity Summary Score does not predict future performance of underlying stocks.
• The Equity Summary Score model has been in production only since August 2009, and, therefore, no assumptions should be made about how the model will perform in differing market conditions.

About StarMine

StarMine is focused primarily on building quantitative factor models for institutional investors. StarMine's equity analytics and research management tools help investment firms around the globe generate alpha and process equity information more efficiently. They are one of the largest and most trusted sources of objective equity research performance scores. Their performance scoring helps investors anticipate trends in analyst sentiment, predict surprises, evaluate financial statements for measures of earnings quality, and more.

Using the Equity Summary Score

There are many ways to use the Equity Summary Score. You can use it as a screening criterion, to help identify stocks you may want to include or exclude from further analysis, in conjunction with other criteria. You can also use it to monitor the consolidated opinion of the IRPs that are following the stocks currently in your portfolio.

The Equity Summary Score from StarMine is not:

• A Plynk rating. As with the other content provided in a stock’s Product Detail Page in the Plynk app, the Equity Summary Score comes from an independent third party, StarMine.
• Simply an average analyst rating. The Equity Summary Score is the output of a model whose inputs are the ratings of the IRPs.
• A buy or sell rating. It is a calculated expression of the overall "sentiment" of the IRPs that have provided a rating on a stock.
• Directly comparable to a consensus rating. A consensus rating is generally a simple "average" rating, while the Equity Summary Score is a model-calculated value.

Who are the independent research providers and how does StarMine receive their ratings?

The Equity Summary Score provides a consolidated view in the Plynk mobile app of the ratings from a number of IRPs.

Important notes about independent research provider ratings and the Equity Summary Score calculation:

• Investors receive end-of-trading-day IRP ratings, Monday through Thursday, for availability by 8 a.m. Eastern time the next day. For IRPs that provide weekly updates after Friday’s market close, their rating change may not be available until Tuesday morning, due to the length of weekly processing. Also, if an IRP misses the deadline for daily processing, their rating change will be included in the Equity Summary Score available in the Plynk mobile app the next trading day after receipt. Date of ratings is provided with the rating.

Finally, we suggest caution with any performance measurement analysis, including the Equity Summary Score. Although it is useful to understand a research firm's overall track record, a research firm's performance on any given stock can diverge significantly from the overall performance. There are additional factors beyond performance that any investor should consider in evaluating a research firm, such as the insights provided and the ease with which the research can be used. Performance of recommendations, while important, should not be the only factor an investor considers in evaluating research firms.