With the increasing number and diversity of funds available in the global market, Morningstar, a leading provider of independent investment research, will be making it even simpler for investors to research and select best-in-class managed investments by combining its Morningstar Analyst Rating with Morningstar Quantitative Rating into a single rating: The Morningstar Medalist Rating.
In announcing the scheduled launch in May this year of this further refinement to the rating system, Germaine Share, Director of Manager Research, Asia, points out that there will be extended coverage of funds as well as increased impact from their analysts’ qualitative input, but that the methodology remains basically unchanged.
Morningstar Awards provide useful reference
Following the changes introduced last year, the soon-to-be-announced 2023 Hong Kong Morningstar Awards for Investing Excellence comprises three types of awards: the Morningstar Category Awards which are subdivided into Best Global Equity Fund, Best Asia Equity, Best China Equity and Best Global & Asian Bond Fund; the Morningstar Asset Manager Awards; and the Morningstar Asset Manager Sustainable-Investing Awards.
Share explains that the Awards program is designed to recognise funds and asset managers that have served investors well over the years, and which Morningstar’s manager research team believes will be able to deliver strong risk-adjusted returns in the longer term. It also includes recognition of asset managers that have built strong ESG capabilities and have proven track records of integrating sustainability principles into their investment programs.
“As past performance is not a guarantee of the future, we make use of our core expertise by placing emphasis on our analysts’ in-depth qualitative evaluation, and independent, forward-looking views of funds in the form of the Morningstar Analyst Ratings during the Awards selection process,” she adds. “Therefore, the winners represent the industry’s top-notch fund offerings, and investor-friendly firms that have done a great job for investors, and that we think should continue to serve them well in the long run. Moreover, the Morningstar Asset Manager Sustainable-Investing Awards recognizes fund firms that not only have line-ups that score well on Morningstar’s sustainability metrics but also demonstrates strong commitment to integration of environmental, social, and governance factors.”
Ratings based on three pillars
Share highlights the importance of qualitative evaluation, pointing out that the Morningstar Analyst Rating is based on three pillars: People, Process, and Parent. ‘People’ refers to the investment team which manages the fund. Managers and analysts with long tenures, relevant investment experience, and diligent succession planning receive a high rating. ‘Process’ refers to how managers execute their investment strategy. It also examines their investment research framework, decision-making, and commitment to their strategy—especially when it’s out of favor. ‘Parent’ refers to the asset manager that offers the fund, and Morningstar analysts prefer asset managers with a winning investment culture, and fundholder-friendly pricing policies.
In assessing asset managers, Share points out that they review a range of factors, including the level of resources the asset managers invest in their funds, and the investment team’s compensation structure. “This let us know whether the funds are adequately equipped to deliver for investors, and how effectively the firm manages to keep talents,” she notes.
Rigorous vetting
Morningstar Awards are held in high regard by the industry because of the rigorous vetting in the selection process, with the backing of a global research team of 150-strong manager research analysts. Candidates must attain a positive Morningstar Analyst Rating (Gold, Silver, or Bronze) or be nominated by Morningstar analysts to ensure that their qualitative, forward-looking views have priority over the backward-looking screening process. The analyst team then discusses the nominees and selects the winners through a majority vote. The funds and firms with the highest number of votes are finally chosen as the well-deserved winners.
