Since the consequences of flaws in research provided by brokerage houses are far more dire in bear than in bull markets, portfolio managers are turning away from such research in favor of in house analysis, a recent study shows.

The study, by Broadgate Consultants of New York, found that the in-house research budgets of eighty percent of the managers interviewed had increased over the past few years. It also found that managers are relying most heavily for their information on their own meetings with top executives of the companies they are assessing.

The survey found that nearly 75 percent of portfolio managers feel that research by brokerage houses- known as sell-side research- is "somewhat" reliable, and almost 15 percent said sell-side research is unreliable. As a result 60 percent of the managers said that over the last three years they have become less dependent upon brokerage research.

Much of the distrust in sell-side research arises from startling stock collapses like that of Cendant Corp., according to Thomas Franco, the chief executive officer of Broadgate Consultants. Cendant's stock fell over 50 percent in April when it was alleged that CUC International provided misleading accounting figures in connection with its merger with HFS to form Cendant in 1997.

Portfolio managers also found fault with the brokerage houses' "buy-hold-sell" rating system because they are wary investment banking affiliates of brokerage houses influence the research arm's recommendations. Seventy-seven percent of the portfolio managers said the ratings did not help them in making investment decisions.

Portfolio managers also said they did not believe the media were objective and 23 percent of the managers surveyed said the media were an unreliable source of information. Managers also do not use the Internet much for their research, the study indicated. While 50 percent of the portfolio managers surveyed said they relied "somewhat" upon the Internet for information, they noted that they depended upon it the least for their research.

Of the sources of information they do turn to, portfolio managers said they regard Securities and Exchange Commission filings as the most objective, the study found.

E-mail has also become a popular information gathering tool. Seventy-three percent of the portfolio managers surveyed said they used e-mail daily, and two-thirds said they would like to get company information and announcements by e-mail.

Twenty-two portfolio managers from mutual funds, banks, pension funds and insurance companies, with a total of $233 billion in assets under management, were surveyed for the study.

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