Fund research options disappear for AFAs

News that FundSource has all but closed down its research operations in New Zealand spells bad news for AFAs.

Tuesday, April 28th 2015, 9:12AM 1 Comment

by Philip Macalister

If I cast my mind back, say, 10 years the battle between the two fund research companies in New Zealand was fierce. Part of this came from the personalities involved and their desire to win the battle for advisers and fund managers.

When ownership of both these firms moved to the corporates – FPG to Morningstar Inc and FundSource to NZX, the battle died down somewhat.

Both businesses have always struggled to make good headway because of market conditions, notably the small size of the New Zealand market.

Just to show how hard they were all the new-comers over the years have failed.  Lonsec came and went. Van Eyk had a crack at the market.  (They came and went – in spectacular fashion in the end).

If there was ever to be a savior for this sector, in my view, it was going to be regulation and the need for advisers to demonstrate they used good research to help make decisions for clients.

We’ve run plenty of stories over the years espousing this view.

The theory looks good and is a hard case to argue against; however regulation has failed to save these businesses.

Morningstar’s presence in New Zealand is becoming less and less. With the promotion of its head researcher, Chris Douglas, to the US the company now has no analysts based in New Zealand. Likewise its New Zealand website has disappeared into Australia.

Last week FundSource announced it was all but pulling out of the real business of research.

Data collection is being outsourced. The most important part of research is ending.

Here’s what it told clients: “NZX has decided to discontinue the qualitative research and editorial components of the services that FundSource currently provides.”

“As such, from 31 May 2015 we will no longer provide qualitative research in-house via FundSource.

"We will be in contact with the small number of clients who currently receive qualitative research in the coming weeks to discuss these changes.”

This last paragraph suggests that its client base has shrunk to an uneconomic size. The other bit which FundSource didn't talk about is that one of the reasons for these changes is that now it is a Top 10 manager in New Zealand following the acquisition of the Michael Chamberlain's SuperLife business the company runs into potential conflict of interest issues as a researcher.

Looking at the situation I am not sure if there is now any qualitative fund research on NZ based funds available for AFAs.

There's plenty of quant, but as we know past performance is no indicator of future performance.



Tags: FundSource Morningstar research

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Comments from our readers

On 29 April 2015 at 12:00 am morningstar said:
· It’s incorrect to state that we have no analysts based in New Zealand following Chris Douglas’ promotion to another role within Morningstar. Elliot Smith in our Auckland office is now working in our fund manager research team, and reports to Tom Whitelaw, our Director of Manager Research Ratings.

Our manager research team has always operated as a trans-Tasman group, Chris Douglas having contributed to our research on Australian as well as New Zealand funds, and our Sydney-based analysts regularly visiting New Zealand.

Tim Murphy, our Director of Manager Research, has been researching New Zealand fund managers since 2006. One of our senior analysts, Kathryn Young, was in Auckland visiting fund managers and updating our research reports last week.

· You also make the comment at the end of the piece that you’re “not sure if there is now any qualitative fund research on NZ based funds available for AFAs”. We currently publish analyst ratings and research reports for 98 individual New Zealand unit trust and KiwiSaver funds from AMP, ANZ, ASB, Asteron, Devon, Fisher, Grosvenor, Harbour, Mercer, Milford, Mint, Nikko, and Westpac (I’ve attached some examples).

· You also refer to our New Zealand website having “disappeared into Australia”. By way of background, we’ve been working to lay the groundwork globally for a major upgrade to our individual investor websites. As part of our goal of providing New Zealand investors with news, articles, research reports, videos, and other content on New Zealand, Australian, and global investments, redirecting our New Zealand site to our Australian site infrastructure was the most effective way to achieve this. For instance, this has now enabled us to provide New Zealand investors with our analyst research on New Zealand and Australian stocks and funds through a premium subscription.

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