U.S. stock pickers are beating their European peers by an ever-widening margin, and one group of strategists says MiFID II’s research rules are the reason why.

With just days to go before the conclusion of an EU consultation that could once again re-write how money managers pay for analysis, Evercore ISI and Frost Consulting have published fresh research arguing Europe’s regulatory overhaul is driving America’s growing dominance in equity investing.

U.S. managers who invest in stocks outperformed their counterparts by 265 basis points in 2019 on an asset-weighted scale, partly because they spent more on outside analysis, the research suggests. Last year’s survey showed the Americans won by 220 basis points in 2018.

Back then Evercore, which sells analysis, acknowledged it was “the most self-serving research note ever.” But their latest update looks timely, with regulators poised to decide whether MiFID’s research rules have inflicted unintended damage to the industry.

“Our gut tells us the EU ends up reversing,” Evercore analysts led by Glenn Schorr wrote.

With MiFID II, Europe sought to put an end to the longstanding practice of investment banks offering research as an add-on to trading, which critics say obscured costs and led to overcharging. The 2018 rules compel asset managers to separate out what they pay for outside analysis from trade execution.

Once costs were fully disclosed, money managers ended up paying for research out of their own pockets to remain competitive. That ultimately led to “significant cuts in research budgets” as they sought to drive down the amount they were spending, according to Evercore.

They cite one estimate from a French trade group that the country’s managers reduced research budgets by as much as 75% between 2017 and 2019.

The analysts first compared the amounts that more than 5,000 funds spent on research as a percentage of their assets under management, and showed that regardless of their geographical or sector focus, U.S. managers generally outspent European rivals several times over. Returns data showed the subsequent American outperformance to be worth $245 billion.

“It’s hard for me to believe that a portfolio manager that’s cutting 50% or 70% of your research counterparties has no impact on any of your strategies,” Neil Scarth, principal at Frost Consulting, said in an interview.

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