Equitable keeps 3 stars

A year ago Morningstar and niche fund manager Equitable conducted a public spat over star ratings, mainly over the way the researcher downgraded the company to a three star rating.

Morningstar has again reviewed Equitable and it has concluded the company has improved a number of its operations, but has decided to keep it on a three star rating.

"Equitable is a well-established niche industry player and has improved its size and its investor, product and distribution over time," Morningstar says.

Equitable, in Morningstar's opinion, is a 'good quality' fund manager and shares a three star rating with AMP, ANZ, Guardian Trust and the National Bank.

The news comes on the back of a strong quarter where Equitable finished the funds flow race for the three months to September 30 in ninth place with net inflows of $9.2 mill.

This result sandwiched it between BT Funds Management and Fisher Funds Management on the table.

With regards to its updated rating, Morningstar has increased Equitable's scores for corporate strength, administration and distribution and investment management.

The biggest jump has been in investment management where Morningstar has increased the company's quant rating from 6.76 to 7.58.

The researcher notes that Equitable has "established mortgage management competency".

"Investment philosophy, style, and process reflect a conservative and capital secured approach.

"The team is small, yet well resourced and should gain greater operation efficiency once a new investment and mortgage system is installed."

It says the company's administration systems are improving, however it notes that it is highly reliant on one distribution channel (independent financial advisers) and its new investment system is yet to be completed and tested.

In terms of the rating of its individual funds there has been a trend where a greater proportion of Equitable's funds are in the two, four and five star categories, while there has been a marked decrease in the percentage of three star funds.

Currently the number of five star funds has increased from 4% to 9% and the number of four star funds is up 5% to 35%. However, the number of three star funds has been halved from 18% to 9% and the number of two star funds is up from 39% to 43%.

Morningstar notes that while Equitable has achieved above average returns ove the short, medium and long term, these results have been achieved at "relatively high levels of risk."

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