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In recent years, investors have increasingly employed channel checks in order to obtain unique, timely and proprietary information about companies and industries. Today, roughly half of all investment firms conduct channel checks as a regular part of their investment research process, and a third use third-party channel checking firms to augment their internal primary research capabilities. While some money managers conduct channel checks on a “one-off” basis as a means of testing or confirming an investment thesis, most money managers believe that the true value of channel checking is realized when it is used to monitor a company or industry on a recurring basis.

Recurring channel checks, or “longitudinal studies,” can deliver a range of advantages to money managers that have the budgets and the patience to conduct them. They allow for the ongoing monitoring of new industry trends. They also allow for the development of consistent, standardized data sets that can be back-tested for predictive power. One-off channel checks, on the other hand, can provide great “color” for developing or testing an investment thesis, but can sometimes fail to capture how industry trends change over time.

According to a recent Integrity survey of 123 US-based money managers, more than half of all the money managers that conduct channel checks as a regular component of their investment research process believe that longitudinal studies are a “highly important” input in their investment decisions. Yet recurring channel checks, while important for tracking changes in demand over time, are more appropriate for some industries than others. Industries that have short sales cycles and a large consumer base, such as retail, tend to require more regular monitoring than industries that have long sales cycles and a niche consumer base. Within the retail industry, companies with higher inventory levels and inventory turnover rates need to be monitored more regularly than companies with low inventory levels and inventory rates, as inventory is a hard asset to control and easy to manipulate on balance sheets.

Integrity’s upcoming ResearchFocus report on the channel checking space identifies a range of third-party channel checking firms that can assist money managers with longitudinal channel checking studies. Although most of these firms will also conduct channel checks on a “one-off” basis, there are several that only work with clients that seek to monitor companies and industries over time.