The U.S. and India are the two most investor-friendly markets in terms of global best practices for the disclosure of portfolio manager names, fund ownership and compensation, according to the third chapter of Morningstar’s Global Investor Experience report, released Monday.
The biannual report 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, including two new ones — sales disclosure, and ESG and stewardship disclosure.
The other dimensions: simplified and non-simplified prospectus, fee disclosure, portfolio holdings disclosure, and portfolio manager name and compensation disclosure.
Morningstar’s disclosure scorecard ranked the 26 markets as follows:
- Top: India, U.S.
- Above average: Canada, Korea, South Africa, Sweden, Taiwan, Thailand
- Average: China, Denmark, Finland, France, Germany, Hong Kong, Mexico, Netherlands, New Zealand, Norway, Spain, U.K.
- Below average: Belgium, Italy, Japan, Singapore, Switzerland
- Bottom: Australia
According to Morningstar, the U.S. has consistently led other countries in the disclosure area since the inception of the study.
For its part, India has gradually added global best practices to its disclosure framework, and has also set a high standard with monthly required portfolio holdings disclosure.
“Led by India and the U.S., most markets around the world have made gradual progress in their disclosure practices,” Christina West, director of manager research services at Morningstar, said in a statement.
Three markets improved their standing from the previous study: South Africa moved up to the above average group, and France and Netherlands joined the average group.
Singapore and Switzerland were downgraded to below average. Neither discloses named portfolio manager ownership in the fund, and neither provides a monetary illustration of fees in the simplified prospectus, according to Morningstar. Both have less frequent required disclosure of full portfolio holdings than the global best practice.
Australia stands alone among the 26 markets studied as having the weakest disclosure regime, Morningstar said, noting that it is the only market where portfolio holdings disclosure is not required.
Amendments to the Australian Corporations Act that would require super trustees to publish portfolio holdings online have been postponed four times since 2015, most recently on Dec. 31, 2019.
“We’re also excited to introduce two new disclosure dimensions in this year’s study: sales disclosure, and ESG and stewardship disclosure,” West said. “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.
West said that for ESG and stewardship disclosure, Morningstar evaluated whether a market has both ESG-relevant regulation and a “stewardship code that requires the disclosure of information to support a fund’s claimed green credentials and stewardship activities.”
Morningstar said global regulation should prioritize more standardized disclosure of environmental, social and governance strategies to inform investors’ understanding and comparison of products.
It noted that Europe has been the most assertive in this area, while 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.
It added that the U.S. lags in this area, having no specific ESG labeling requirements or standards set by the government or related bodies.
Morningstar said that from its perspective, the best regulatory approach is rooted in greater transparency as it helps investors make better decisions and creates trust in the vehicles used for investment and the firms that manage client assets.
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