Morningstar global study of managed fund investors

Morningstar this week released the results of a global study that measures the experiences of managed fund investors in 22 countries in North America, Europe, Asia, Australasia, and Africa. This followed an initial survey Morningstar conducted globally in 2009.

The aim of the study was to identify best practices in managed fund investor experiences, highlighting both strengths and weaknesses, to help fund managers, regulators, and market commentators focus on and enhance best practices for investors.

The study focuses on providing an assessment of key elements of the fund investor experience across different countries, rather than judging the funds management industry. While there are numerous studies of shareholder rights, this has not historically been the case for investors in managed funds.

Morningstar researchers evaluated and scored countries in four categories: regulation and taxation, disclosure, fees and expenses, and sales and media. Countries were assigned letter grades for each category, and category scores were added to produce an overall country grade. The study was based on publicly-available information and interviews with local Morningstar analysts.

Singapore and the United States were identified as the most investor-friendly managed fund environments. The following are the overall country grades, from highest to lowest scores in alphabetical order:

Singapore: A
United States: A
Thailand: A-
India: B
Netherlands: B
Switzerland: B
Taiwan: B
China: B-
Sweden: B-
Canada: C+
France: C+
Germany: C+
Japan: C+
United Kingdom: C+
Australia: C
Belgium: C
Hong Kong: C
Italy: C
Norway: C
Spain: C
South Africa: C-
New Zealand: D-

Australian Results
Australia scored an overall grade of C, in the middle of the 22 countries assessed in the study. This was the same grade as in the initial study in 2009.

Australia scored well on a global comparison in the areas of fees and expenses (A) and sales and media (B), but comparatively poorly in the areas of regulation and taxation (D) and disclosure (D).
• The study noted that investors in Australian share and cash funds in particular pay among the lowest fees worldwide, and upfront entry fees are frequently rebated.
• Sales and marketing practices were considered average, although the open architecture nature of the Australian funds management industry was considered favourable. Coverage of managed funds in the Australian media was considered typical in terms of frequency of coverage and content.
• Australia scored comparatively poorly in regulation and taxation, investors in Australian managed funds paying high investment taxes compared to investors in other countries.
• Australia scored very poorly in the area of disclosure, principally because fund managers are not required to disclose comprehensive fund portfolio holdings on a regular basis. Australia and New Zealand remain the only two countries in the 22 studied where this is the case.
New Zealand Results
New Zealand scored an overall grade of D-, the bottom of the 22 countries assessed in the study. This was the same grade as in the initial study in 2009.

The study did note, however, the review in progress of fees, commission structures, disclosure, and related issues by the Ministry of Economic Development and the Securities Commission, and the creation of a single regulator, the Financial Markets Authority. These have the potential to make the New Zealand investment environment more favourable for managed fund investors.

(Morningstar has made an extensive submission in response to the Ministry of Economic Development's Periodic Reporting Regulations for Retail KiwiSaver Schemes Discussion Paper. Click here to read our submission.)

New Zealand scored reasonably well in the area of fees and expenses (B), but comparatively poorly in the areas of sales and media (C+), disclosure (D), and regulation and taxation (D+).
• The study noted that fees for New Zealand funds appear to be comparatively low, although the lack of uniform standards in the calculation and disclosure of fees for New Zealand managed funds remains a major issue.
• Sales and marketing practices were considered average. Coverage of managed funds in the New Zealand media was also considered typical in terms of frequency of coverage and content.
• New Zealand scored comparatively poorly in regulation and taxation. Unlike a number of other countries, there are no tax incentives in New Zealand for encouraging long-term investing, as there are no tax concessions for long-term rather than short-term gains. Additionally, the complex tax system in New Zealand effectively causes investors to pay taxes on unrealised capital gains as well as realised gains on foreign holdings.
• New Zealand scored very poorly in the area of disclosure, principally because fund managers are not required to disclose comprehensive fund portfolio holdings on a regular basis. New Zealand and Australia remain the only two countries in the 22 studied where this is the case.
To read the full Morningstar global press release, click here.

To read the full Morningstar global study, click here.

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