Morningstar is poised to shake-up the NZ fund benchmark business this year with a range of in-house indices, many of which are free.
Jamie Wickham, head of Morningstar Australasia, said the NZ fund index market was ripe for disruption given the high costs of product benchmarking faced by fund managers.
“There’s a lot of discontent in NZ about the price managers have to pay to use traditional benchmarks,” Wickham said. “We want to disrupt the status quo and drive down costs.”
Regulations require NZ fund managers to measure most products against recognised benchmarks, which can incur significant annual costs for providers.
First flagged by previous Morningstar Australasia chief, Heather Brilliant, at the researcher’s 2016 NZ fund manager of the year event, Wickham said the indices were now available for use.
Since 2016 the research house has released over 100 free equity benchmarks under its ‘Open Index’ program that spans most regions and countries including NZ and Australia.
The Open Index “offer is open to anyone in the financial services industry who would like to join the project, including asset managers, insurance companies, consultants, wealth platforms, advisor networks, discount brokerages, retirement plan providers, and plan sponsors”, Morningstar says.
“Any firm that currently pays for equity beta indexes for benchmarking may join the project.”
However, Morningstar indices are free for benchmarking only and can’t be used to back products such as exchange-traded funds or in institutional mandates.
Typically, managers pay the likes of S&P and MSCI for all their benchmarking needs but Morningstar’s free offer is already attracting defectors in NZ. For example, boutique firm, Pathfinder, has adopted the free Morningstar benchmarks for its fund range.
According to a 2016 Morningstar article, rising interest in the Open Indexes offer “suggests that costs are becoming more important than the brand of an index provider”.
“We see this as a possible path to lowering costs at the firm level and, ultimately, reducing charges to institutional and individual investors,” the report says.
Wickham said Morningstar also offers a suite of other indices covering most asset classes that are “materially” cheaper than rivals. Most recently, the researcher has rolled out a series of environmental, social and governance (ESG) equity benchmarks including a ‘Low Carbon Risk Index Family’.
But if the bargain basement benchmark offer is piquing the interest of NZ fund managers, he said Morningstar was also seeing increased demand for other services beyond traditional research.
For instance, Wickham said Morningstar had just signed up two new NZ managers for its front-end investor reporting tools after securing inaugural client, Milford Asset Management, last May.
Morningstar does not separate out NZ figures but the US-listed group’s latest annual figures show Australian revenue of almost US$41 million in 2018 during a period where global income surpassed the US$1 billion mark for the first time.
According to the 2018 Morningstar results published last week, the group grew revenue almost 12 per cent over the year to just over US$1 billion, of which about three-quarters came via licensing deals; asset- and transaction-based fees comprised the remainder.
Free cash-flow hit almost US$240 million for Morningstar globally last year.
Morningstar employs over 5,400 people globally with just one, Greg Bunkall, based in NZ.
Wickham was in NZ last week, along with Morningstar director manager research Asia-Pacific, Tim Murphy, to present the group’s fund manager of the year awards, which starred Nikko Asset Management in the leading role.
After picking up the top Morningstar gong for NZ fund managers last year, Nikko was again a “comfortable winner” in the latest awards.
“Nikko has reinvigorated its business in recent years, improvements in its domestic capabilities complemented by a strong new global offering, leaving investors with a range of good quality options to choose from,” Morningstar says in a release.
Milford Asset Management also featured again in the winners’ circle for its KiwiSaver fund, which has achieved the Morningstar accolade in five out the last seven years. The familiar names of Mint Asset Management (domestic equities) and AMP Capital (fixed income) along with relative newcomer to NZ (the global equities T Rowe Price fund offered by Harbour Asset Management) rounded out the Morningstar category winners.
While active managers dominated the NZ awards, across the Tasman the passive fund giant, Vanguard took out the major Morningstar Australia prize, beating out mega industry superannuation fund, Australian Super, and perennial global equities favourite, Magellan, in the process.
The full list of NZ winners and finalists is as below:
Fund manager of the year
Winner: Nikko Asset Management NZ
Finalists: Harbour Asset Management and Milford Asset Management
Winner: Mint Asset Management NZ Active Equity Fund
Finalists: Castle Point Ranger Fund and Nikko Core Equity Fund
Winner: T Rowe Price Global Equity Growth Fund
Finalists: Nikko Global Equity Fund
Winner: AMP Capital NZ
Winner: Milford Asset Management
Finalists: ASB and Mercer