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Morningstar's Global Study of Fund Disclosures Finds India and the United States Earn Top Marks While Australia Continues to Lag Amid Rising Standards

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The third chapter of the biannual report incorporates two new disclosure dimensions: Sales Disclosure and ESG and Stewardship Disclosure

CHICAGO, Dec. 14, 2020 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published the third chapter of its biannual Global Investor Experience (GIE) report. The report, now in its sixth edition, assesses the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa. The "Disclosure" chapter evaluates markets based on six key disclosure dimensions, which this year includes two new dimensions—Sales Disclosure as well as ESG and Stewardship Disclosure.

Using a grading scale of Top, Above Average, Average, Below Average, and Bottom, Morningstar gave Top grades to India and the United States, the two most investor-friendly markets in terms of global best practices for the disclosure of portfolio manager names, fund ownership, and compensation. Conversely, Morningstar assigned a Bottom grade to Australia, which remains the only market without regulated portfolios holdings disclosure and has yet to adapt to increasing investor expectations around ESG and Stewardship Disclosure.

"Led by India and the U.S., most markets around the world have made gradual progress in their disclosure practices. Six markets—Canada, Korea, Taiwan, Thailand, South Africa, and Sweden—received Above Average grades. France and the Netherlands took jumps upward, benefiting from incremental improvements across EU markets, while South Africa's grade also improved. There are some notable laggards, such as Australia, that lack industry pressure or political will to make corrective changes," said Christina West, director of manager research services at Morningstar and co-author of the study.

"We're also excited to introduce two new disclosure dimensions in this year's study: Sales Disclosure and ESG and Stewardship Disclosure. For Sales Disclosure, we considered whether financial advisors are required to disclose conflicts of interest and provide appropriate fund documentation at the point of sale. ESG and Stewardship Disclosure is also an important emerging area, and we evaluated whether a market has ESG-relevant regulation as well as a stewardship code that requires the disclosure of information to support a fund's claimed green credentials and stewardship activities."

The third chapter on Disclosure is available here. Highlights include:

  • India and the U.S. again earned Top grades through robust disclosure across our six key disclosure dimensions. Since the inception of this study, the U.S. has consistently led the pack in this area, while India has gradually added global best practices to its disclosure framework. India has also set a high standard with monthly required portfolio holdings disclosure.

  • Australia stands alone as having the weakest disclosure regime among the 26 markets evaluated in this study. As an otherwise sophisticated market, Australia remains the only market where portfolio holdings disclosure is not required. Australian Corporations Act amendments that would require super trustees to publish portfolio holdings online were due to come into effect on Dec. 31, 2019 before being postponed. The deadline had already been extended three times previously, in 2017, 2016, and 2015.

  • Singapore and Switzerland were downgraded to Below Average, joining Belgium, Italy, and Japan. A common theme for these countries is that they do not disclose named portfolio manager ownership in the fund, do not provide a monetary illustration of fees in the simplified prospectus, and have less frequent required disclosure of full portfolio holdings than the global best practice.

  • Global regulation should prioritize more standardized ESG disclosure to inform investors' understanding and comparison of products. Europe has been the most assertive in this area, with Sweden as the leader in ESG disclosures, given its specific requirements. Outside of Europe, the list of green funds disclosed on the Hong Kong regulator website is an example of a simple, yet immediate impact initiative that helps investors more easily identify funds that meet stated ESG requirements. The U.S. lags in this area, having no specific ESG labeling requirements or standards set by the government or related bodies.

  • From Morningstar's perspective, the best regulatory approach is rooted in greater transparency. Transparency is important to investors as it helps them make better decisions and creates trust in the vehicles used for investment and the firms that manage client assets.

Methodology
The GIE study reflects Morningstar's views about what makes a good experience for fund investors. This study primarily considers publicly available open-end funds and exchange-traded funds, both of which are typical ways that ordinary people invest in pooled vehicles. The study does not include other pooled investment vehicles, such as guaranteed funds, variable annuities, insurance-linked funds, private pension funds, closed-end funds, collective investment trusts, hedge funds, private equity funds, or venture capital funds.

As in previous editions, for this chapter of the GIE study, Morningstar evaluated markets based on six key disclosure dimensions, which include Sales Disclosure and ESG and Stewardship Disclosure in this edition. The dimensions and broad scoring weights are:

1) Simplified and Non-Simplified Prospectus

30%

2) Fee Disclosure

10%

3) Portfolio Holdings Disclosure

20%

4) Portfolio Manager Name and Compensation Disclosure

15%

5) Sales Disclosure

15%

6) ESG and Stewardship Disclosure

10%

This chapter follows the Fees and Expenses chapter that Morningstar published in September 2019, as well as the Regulation and Taxation chapter that published in May 2020.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $215 billion in assets under advisement and management as of Sept. 30, 2020. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. The grades assigned for each market are derived from a qualitative assessment process performed by manager research analysts. The grades referenced in this release and report are assessments, thus are statements of opinions and are not to be considered as guarantees. This press release and the Global Fund Investor Experience report is for informational purposes only.

©2020 Morningstar, Inc. All Rights Reserved.

MORN-R

Media Contact:
Rebecca Rogalski, +1 312 244-7771 or rebecca.rogalski@morningstar.com

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SOURCE Morningstar, Inc.