New Zealand fund managers, even award-winning ones, are crap was the message most media organisations gleaned from Morningstar’s D- rating of the country. I doubt if many of them even bothered to read past the press release and into the full study, where Morningstar warned that “the report should not be construed as grading each country’s ‘fund industry’”.
“It aims much more broadly than that, in recognition of the fact that the mutual fund investor experience is shaped by far more than the fund industry alone,” the report says.
So the whole system is crap, according to Morningstar – government, regulators, tax policy wonks, researchers, media, – not just those useless fund managers and their lawyer lackeys who draft incomprehensible investment statements and prospectuses.
Actually Morningstar was not so harsh to New Zealand in the report text and the D- was simply the result of the researcher’s skewed – in a statistical sense – scoring system. The study gave extra weight to areas it dubbed ‘investor protection’ and ‘transparency in prospectus and reports’, where New Zealand scored particularly badly.
I think the D- played nicely into New Zealand’s well-developed inferiority complex – an A+ to Morningstar’s marketing department for generating a lot of coverage – but it shouldn’t be taken at face value.
As several commentators have already pointed out the report failed to give New Zealand much credit for its new PIE tax regime or KiwiSaver – perhaps proper acknowledgement of these advances could’ve lifted us up to a D+ on the Morningstar scale, above Spain at least.
The report did raise some important points about fee transparency in the New Zealand market. There is no standard way fund managers express fees here and that does have to change.
Vance Arkinstall, head of the Investment Savings and Insurance Association (ISI), put out a release saying the industry was working towards “improved voluntary standards for consistent disclosure of fees and charges and reports on investment performance”.
Well it’s been working towards that for 20 years. Voluntary standards are rubbish anyway – uniform fee disclosure will have to be mandated.
But Morningstar’s main beef about transparency was that New Zealand (and Australian) fund managers don’t disclose their portfolio holdings or provide an update and profiles of who is running the money.
And this is where the report veers towards supporting Morningstar’s commercial interests rather than upholding the rights of investors. Morningstar makes money by selling reports and tools (such as the so-called ‘Global style box’, which analyses the underlying holdings of funds) based on this information.
Anthony Serhan, Morningstar head of research, got a bit upset when I put this to him. Serhan admitted the portfolio and fund manager profile information would make the researcher’s job a bit easier but he said investors would also like to know this stuff.
That is true for some but I suspect investors are more interested in understanding fund management fees and knowing they have recourse when things go wrong.