NZ managed funds still rate poorly - Morningstar study

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New Zealand continues to rate poorly for investors in managed funds, according to a global study conducted by investment research company Morningstar.

The study, which focused on assessing key elements of the fund investor experience across different countries, rated New Zealand at "D minus" out of 24 different countries, unchanged from an initial rating given in 2009.

Singapore and the United States were identified as the most investor-friendly managed fund environments and were rated at "A".

Morningstar researchers evaluated and scored countries in four categories: regulation and taxation, disclosure, fees and expenses, and sales and media.

See the global press release here.

Countries were assigned letter grades for each category, and category scores were added to produce an overall country grade. The study was based on publicly-available information and interviews with local Morningstar analysts.

In New Zealand's case, Morningstar said a review of fees, commission structures, disclosure, and related issues by the Ministry of Economic Development and the Securities Commission, and the creation of a single regulator, the Financial Markets Authority, had potential to make the local investment environment more favourable for managed fund investors.

New Zealand scored reasonably well in the area of fees and expenses (B), but comparatively poorly in the areas of sales and media (C plus), disclosure (D), and regulation and taxation (D plus).

The study said fees for New Zealand funds appeared to be comparatively low, although the lack of uniform standards in the calculation and disclosure of fees for New Zealand managed funds remained a major issue.

Sales and marketing practices were considered average. Coverage of managed funds in the New Zealand media was also considered typical in terms of frequency of coverage and content.

New Zealand also scored comparatively poorly in regulation and taxation. "Unlike a number of other countries, there are no tax incentives in New Zealand for encouraging long-term investing, as there are no tax concessions for long-term rather than short-term gains," Morningstar said.

"Additionally, the complex tax system in New Zealand effectively causes investors to pay taxes on unrealised capital gains as well as realised gains on foreign holdings," it said.

New Zealand scored very poorly in the area of disclosure, principally because fund managers are not required to disclose comprehensive fund portfolio holdings on a regular basis. New Zealand and Australia were the only two countries in the 22 studied where this was the case, Morningstar said.

The following are the overall country grades, from highest to lowest scores:

Singapore: A

United States: A

Thailand: A-

India: B

Netherlands: B

Switzerland: B

Taiwan: B

China: B-

Sweden: B-

Canada: C+

France: C+

Germany: C+

Japan: C+

United Kingdom: C+

Australia: C

Belgium: C

Hong Kong: C

Italy: C

Norway: C

Spain: C

South Africa: C-

New Zealand: D-