David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money: NZ most-improved, despite disclosure worries

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Morningstar says New Zealand is on a glacial pace to conform to global typical practices around fund management disclosures. Photo / Thinkstock
Morningstar says New Zealand is on a glacial pace to conform to global typical practices around fund management disclosures. Photo / Thinkstock

Mr Michael Smith, who describes himself as "The Fund Manager of Fidelity Investment International", personally tapped me today as a potential co-investor.

According to the London-based Smith, Fidelity, the "World Largest Fund Management Company with over GBP1.2 Trillion Capital Investment Fund", wants to do a JV with me on a transaction valued at GBP25,745,000,00.

What the hell, why not?

Fidelity is famous. Furthermore, according to investment research house, Morningstar, the UK is an above-average funds management jurisdiction, rating a B- in the latest 'Global Fund Investor Experience Report'.

In the same report New Zealand scored what looks like a miserable C- , on the same level as Hong Kong and only just above the bottom-of-the-class D-rated South African industry.

There is an upside to this downbeat assessment, though.

"New Zealand showed the greatest improvement from the 2011 study, rising from a D- to a C- because of positive regulatory changes and an encouraging expansion of disclosure requirements," the Morningstar study says.

Despite this most-improved prize, the C- ranking still probably feels unjust to the more sensitive local fund managers.

However, there's little need to take offence. The Morningstar study isn't a report on manager competence but a big-picture scan of the fund-investing environment with scores allotted in four categories: regulation/taxation; disclosure; fees/expenses, and; sales/media.

The lumping of sales/media (where NZ achieves its highest Morningstar ranking of B-) and regulation/taxation into single categories seems to have been done for reporting efficiency rather than any particular logic but these inconsistencies are at least applied consistently to all 24 countries in the Morningstar sample.

As well, the weightings applied to factor scores reflect Morningstar's view rather than any universal truth.

For instance, in the case of after-tax returns (surely an important investor consideration) the one, and only, A-rated country, the United States, rates poorly. New Zealand, meanwhile, according to Morningstar, is an after-tax haven.

"The returns of a hypothetical portfolio held for five years is reduced from a pretax 6.29 per cent to an aftertax return of 6.06 per cent [in New Zealand]," the Morningstar study says. "This 23-basis-point annual reduction is lower than is found in most countries in the survey."

Also, the researcher has always been down on countries that don't force funds to fully disclose underlying holdings, which, punishes both New Zealand and Australia.

The report does mention New Zealand has made some progress in this area, with annual full disclosure of portfolio holdings to be mandatory for KiwiSaver funds from later this year a tad too little, too late for Morningstar.

"The proposed changes put New Zealand on a glacial pace to conform to global typical practices, let alone best practices," Morningstar says.

I have since discovered New Zealand's investment scams, too, are behind the times.

Disappointingly, my Fidelity co-investment opportunity, for example, was on offer in the UK at least one year ago. Mr Michael Smith has promised full disclosure on application.

David Chaplin

A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. David has edited magazines and websites for the financial advice, investment and superannuation industries. Today, he contributes to various publications in Australia as well as his bi-weekly blog for the NZ Herald under the 'Inside Money' banner.

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