Morningstar Global Investor Experience Study Result

Morningstar studies mutual fund investor experiences across 16 countries, gives the U.S. the only “A” and New Zealand a “D-”

Morningstar 12 May, 2009 | 0:00
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CHICAGO, May 12, 2009—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today released results of a study that measures the experiences of mutual fund investors in 16 countries in North America, Europe, and Asia. Morningstar’s evaluation of investor-friendly practices in fund markets worldwide identified the United States as the best market for fund investors based on such criteria as investor protection, transparency, fees, taxation, and investment choices. New Zealand scored the worst. Study results were unveiled at the Morningstar UK Investment Conference in London today.

“Much has been written about the rights of common stock shareholders from a global perspective. Policy differences among countries have sparked a cottage industry of research and opinion about corporate governance, and this debate is driving the gradual convergence of rules and regulations among developed countries. But the mutual fund shareholder doesn’t even have a shack of global corporate governance research, let alone a cottage,” said John Rekenthaler, vice president of research for Morningstar. “Five years ago, Morningstar launched Stewardship Grades in the United States that evaluate the degree to which fund companies put investors first. These grades have been a catalyst for positive change in the fund industry. We hope our global study will expand the dialogue about best practices for the mutual fund investor to investment companies, distributors, and regulatory bodies around the world.”

Morningstar researchers evaluated and scored countries in six categories—investor protection, prospectuses and shareholders’ reports, transparency in sales practices and the media, fees and expenses, taxation, and distribution practices. Both questions and answers were weighted to give greater importance to high-priority issues, primarily questions surrounding fees and transparency. Morningstar assigned a letter grade for each country in the study commensurate with its score in each category. Then, Morningstar added the category scores to produce an overall country grade. The study’s authors based their scores on a combination of factual research and interviews with Morningstar analysts residing in each country. Below are the overall country grades with the countries listed in order from highest to lowest scores:

United States: A
China: B+
Taiwan: B
Japan: B
Netherlands: B
Italy: B
Canada: B-
France: C+
Switzerland: C+
United Kingdom: C+
Singapore: C
Australia: C
Germany: C
Hong Kong: C
Spain: D
New Zealand: D-

The United States received an A in the areas of prospectuses and shareholders’ reports and for fees and expenses. U.S. mutual fund reports provide a uniform presentation of fees and expenses as well as complete disclosure of a fund’s total expense ratio history. The United States also had the lowest overall annual expense ratio for its mutual funds. Most investors in the United States pay below 0.75% annually for fixed-income funds and below 1% for equity funds. The United States scored less well in the area of investor protection, garnering a C. The United States lost points because there is no requirement that fund assets be kept with a custodian that is separate from the fund manager.

New Zealand scored the worst overall, largely because of low grades for prospectuses and shareholders’ reports and taxation. New Zealand received a grade of D- for prospectuses and shareholders’ reports. This poor grade was given for several reasons, the most important of which was the lack of portfolio holdings disclosure. New Zealand also received a grade of D- in the area of taxation. Dividend and capital gains tax rates are high, and there is no tax incentive for long-term investing—tax rates are the same for dividends, short-term capital gains, and long-term capital gains.

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About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 300,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 19 countries and minority ownership positions in companies based in three other countries.

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