Morningstar: India and US earn top marks in global study of fund disclosures

Morningstar: India and US earn top marks in global study of fund disclosures

December 14, 2020

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Today Morningstar published the latest chapter of its sixth Global Investor Experience Study, which assesses the experiences of mutual fund investors in 26 global markets based on six key disclosure dimensions, which this year includes two new dimensions—Sales Disclosure as well as ESG and Stewardship Disclosure.

Most markets around the world have incrementally improved the environment for mutual fund investors through better disclosure practices, however, there are some notable laggards.

The Netherlands receives a grade of Average for disclosure. There is no central website in the Netherlands for fund documents and no provision for a monetary illustration of fees within fund literature. But the Netherlands exceeds the European standard for sales disclosure with its ban on retrocessions and other types of compensation paid from funds to financial advisers. Such rebates are typically allowed, with varying levels of disclosure, elsewhere.

Other highlights from the study include:

  • Most markets around the world have incrementally improved the environment for mutual fund investors through better disclosure practices. There are some notable laggards, such as Australia, that have neither dealt with existing basic deficiencies in their markets' disclosure practices nor adapted to changing investor expectations around ESG and Stewardship disclosure.
  • 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.
  • Worldwide, much ESG regulation is in the pipeline that should provide more standardised disclosure to inform investors' understanding and comparison of products.
    • This should help prevent greenwashing—or using ESG claims in fund marketing without ESG principles truly guiding investment decisions—from being a significant issue for investors.
    • In Europe, which is the region with the most ESG investment regulatory innovation, Sweden is the leader in ESG disclosures, given its granular regulatory 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.

Andy Pettit, Director, Policy Research, EMEA, comments, “From Morningstar's perspective, the best regulatory approach is rooted in greater transparency. In the long run, mutual fund industry stakeholders that fight transparency are likely to generate outcomes that are bad for investors and bad for the industry itself. Hence, we are pleased with the incremental improvements most markets have made in improving disclosure practices since our previous study.”

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