Morningstar Advisor - April/May 2011 - (Page 42)

Spotlight Spotlight U.S. Fund Investors Have It Good By John Rekenthaler and Benjamin Alpert Our global survey ranks the United States as tied for the highest. But advisors and investors must continue to push for lower fees and better tax treatment. In 2009, Morningstar issued its first Global Fund Investor Experience Survey, which examined the investment environment for mutual fund investors in 16 countries. The survey’s aim was to highlight best, average, and worst practices, with the hope of stimulating discussion and—where necessary—encouraging improvement. In that goal, the survey was successful. It received extensive worldwide media coverage and generated responses from many fundcompany trade organizations and regulatory bodies (including the Investment Company Institute and SEC in the United States). Most of the exchanges we had with these groups consisted of sharing thoughts as opposed to sparking immediate change, but in a few cases, the survey did prompt immediate improvement. In March, Morningstar released a new, updated survey. In the two years since the first report, we added six countries: Belgium, India, Norway, South Africa, Sweden, and Thailand. In addition, we retooled the survey to place more emphasis on questions that can be answered quantitatively, rather than relying on the judgment of Morningstar’s mutual fund analysts based in the countries. As before, the survey is not simply a measure of the various fund industries. It is a study of investor experiences and includes the effects of government bodies, the media, and advisors. The top scoring countries in Survey 2.0 are Singapore and the United States, which each receive the highest overall grade of A. These are followed, very broadly speaking, by Asian countries along with the better European scorers, then by the weaker European marketplaces, and finished by the small and isolated markets of South Africa and New Zealand at the bottom. The United States excels in three of the survey’s four sections. Disclosure and none of the specialized data points was to be had. Vocal and repeated demands from financial advisors for such information prodded the SEC into creating new requirements— requirements that helped to propel the U.S. fund industry into the global lead. The weakest disclosure is in Australia and New Zealand, where fund portfolios are not available to shareholders. In that respect, Australia and New Zealand resemble U.S. hedge funds, which selectively disclose information based on the status of the party that is making the request, the recent record of the fund company, and other such factors. Such a policy eliminates the ability for investors and advisors to make standardized comparisons across the investment universe. Without universally available portfolio holdings, such items as style boxes, ownership zones, active-share calculations, and attribution analysis are impossible to calculate. The United States is unique for the level of information about managers it makes available for investors. Manager information remains rare around the world, with funds in only three countries typically providing names of managers and their tenures. Funds in an additional four countries provide names but not tenures. Vaguely worded “team-managed” funds are common everywhere; in contrast, the Without question, the United States is the global leader for its disclosure requirements. Portfolios are published quarterly; manager names and tenures are required items; the SEC maintains an Internet site whereby fund documents can be readily retrieved; and the U.S. funds offer several data points that cannot be obtained in any other country. These include the structure of fund-manager and board compensative schemes and the amount of money that fund managers have invested in their own shares. U.S. excellence in disclosure owes largely to efforts from the advisor community. Two decades ago, none of the above-mentioned information was available to investors. Portfolios were reported semiannually rather than quarterly, manager data were not required, 42 Morningstar Advisor April/May 2011

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2011

Morningstar Advisor - April/May 2011
Letter From the Editor
The Debate That Matters Most
What Can the Mutual Fund Industry Do Better?
Cool Logic, Warm Intent
How to Start a Mutual Fund
Owner and Operator
Middle East Revolts Roil Oil Markets
Four Picks for the Present
Investment Briefs
How We Improve Our Odds of Picking Outperformers
Health Care Survived 2010, but Investors Want Proof
The Global Fund-Leadership Playoffs: Europe vs. the United States
U.S. Fund Investors Have It Good
U.S. Fund Firms Learn to Speak UCITS
Balancing Act
The Tamer Ride
Investors Lend a Hand
Healthy, Wealthy, and Wide
Foreign Funds That Win at Concentration
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
VAs Finish 2010 With a Solid Gain
Buying Good Funds, Poorly

Morningstar Advisor - April/May 2011