After about 18 months of discussion with the funds management industry and the gathering of data way back to 2003, Morningstar in Australia has started to publish the details of fund portfolios. Just over half of fund managers are going along with the full disclosure. Morningstar hopes to get this up to 100 per cent.
Anthony Serhan, Morningstar’s managing director of research strategy for APAC, said that one of the good things about the strong take-up in disclosure was that it showed the regulators that the industry could be, for a large part, self-regulating.
The Morningstar initiative comes ahead of the APRA plan to insist that all of its Australian super funds detail the portfolio holdings of their managers – an issue which has been debated for several years. Following representations from the custody body, ACSA, in particular, APRA has delayed introducing the regulation until 2019 and has also made it more palatable for big funds which use international alternatives managers.
Serhan, a CFA who is also the chair of the CFA Society, Sydney, said a lot of other countries, including New Zealand, already provided this information to all members and investors. “It improves the credibility of the whole industry,” he said. “Even if the average member never looks at [the data]someone else will. Someone will study every disclosure, and the member can take comfort from that.”
Morningstar reached out to 142 managers over the last 18 months, representing 4394 funds and approximately A$563 billion of assets under management. With three options to choose from, 51 per cent of managers opted for full disclosure across all products, 11 per cent elected to disclose full holdings on a fund by fund basis, and 38 per cent maintained their top-10 disclosure policy. As a result, over A$337 billion worth of assets under management (or 60 per cent) is now showing in full for Australian-managed funds.
“The industry is essentially self-regulating,” said Serhan. “With full portfolio holdings disclosure regulation for superannuation funds still to be implemented and no disclosure requirements for investment funds on the horizon, there was an opportunity to step in and facilitate a movement that brings greater transparency to the industry. Asset managers have responded in a constructive manner, which signals a fundamentally positive move for the investor.
“More than ever, consumers want to interact with brands and industries they can trust. With the growing use of technology comes an increased expectation around information and transparency. Exchange-traded funds, managed accounts and other managed investments already provide holdings transparency. This is a natural step for managed funds in Australia and will help expand the discussion with fund investors from performance to what they own.”
While full disclosure may be new territory for Australia, it was commonplace globally, he said. “As an otherwise sophisticated market, it is remarkable that Australia remains the only market with no implemented portfolio disclosure regime among the 25 analysed in Morningstar’s recently updated Global Fund Investor Experience Study.”
This was one factor contributing to Australia’s “below-average” rating for disclosure in the study. It also explains in part the growing number of asset managers voluntarily aligning with the global best practice on this issue.
Serhan said: “We worked with a small focus group of fund managers in the early days of the campaign including Aberdeen, Cbus, Franklin Templeton, J.P. Morgan, MFS, Nikko AM, Pengana, PIMCO, RARE, Fidelity and Vanguard. With many more joining the movement every day, our goal is to work with the industry toward 100 per cent coverage and disclosure.”
While ASIC and APRA are chasing big super funds for this information, with implications for their custodians who will have to do a lot of the work, the Morningstar initiative allows fund managers to get on the front foot.
Morningstar has been keeping both the FSC and ASFA informed with its progress with the initiative and is looking to allow the improvement in discussions around the analytics surrounding portfolios. ASFA and the FSC formed a working group to look at the issue back in 2012. Nothing substantive eventuated.
New Zealand has already moved to full disclosure, and, despite some front-page news around KiwiSaver funds that still invest in so-called ‘sin stocks’ such as tobacco, armaments and dirty coal, the process has settled down to one which is clearly in the best interest of investors.
Greg Bright is publisher of Investor Strategy News (Australia)