Lonsec back on top

Lonsec has regained the top spot in the first part of Money Management's 2017 Rate the Raters survey, while new and smaller player SQM Research has earned a nod from fund managers for the first time, Oksana Patron finds.

Part one of Money Management’s 2017 Rate the Raters survey has seen Lonsec resume top spot after being unseated by Zenith last year. Fund managers who responded to Money Management’s survey with their views on the research houses reviewing their products, Lonsec outranked its peers in three out of six categories.

SQM Research, which is a relatively new entry in Money Management’s survey and much smaller  than its well-established competitors, managed to win in two categories with clients appreciating both the rating process and feedback provided by the company.

SQM was originally launched in 2006 and was initially a property data business, but moved to fill the void left by the collapse of van Eyk, and in 2014 hired former van Eyk’s research head and chief investment officer, Robert da Silva.

SQM Research’s owner and founder, Louis Christopher, said: “I initially ran on the side while running a joint venture including van Eyk which started off at the same time which business was to rate the property funds management industry on behalf of van Eyk Research.”

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“In 2010, SQM Research bought out that joint venture and the ratings research team all moved over to SQM Research. At the same time SQM started expanding its ratings coverage into other asset classes.”

The company says its target market is now financial advisers who seek active fund managers as part of their APL and also require Australian Tax office (ATO-compliant property valuations for their clients.

Usage

The 2017 survey found that the overall usage ranking of the research houses had not drastically changed from last year with Lonsec and Zenith again the most popular firms for fund managers to turn to for their product reviews.

This year Lonsec was selected by 98 per cent of the survey’s respondents, which represented a slight increase from 97 per cent last year, and pushed down its rival and last year’s winner, Zenith, to second position. 

Zenith saw a large drop in the number of managers, who participated in Money Management’s survey and had their products rated or reviewed by Zenith over the past 12 months, with only 83 per cent of respondents this year saying they had used the firm for product ratings. This compared to 99 per cent of fund managers who chose Zenith last year.

While Morningstar managed to maintain third place, the firm experienced a slight drop from 76 per cent to approximately 70 per cent of respondents this year who stated they had decided to have their products rated by the firm.

While Mercer again landed in fourth place, it saw a slight increase of two percentage points to 47 per cent counting year-on-year in the number of respondents who said they had used the firm to rate their products in the last 12 months. 

SQM Research was included in the Money Management survey for the second time this year, and closed the ranking for this category. Only 26 per cent of respondents admitted they had chosen the firm to value their products. By comparison, SQM

Research attracted over one-third of all the fund managers in 2016 to use its services.

Methodology

On research methodology applied by each of the raters, Lonsec emerged as the obvious winner this year with over 90 per cent of its clients rating the firm’s research methodology as either “excellent” or “good”. 

Lonsec also earned the highest number of single “excellent” ratings, as 41 per cent of its clients used that term to describe its methodology. With this overall score, the company managed to regain its top spot in the category after giving it up to

Mercer last year, and remained the only research house that no fund manager delivered a “below average” or “poor” rating for its methodology.

On the other hand, second placed Zenith received a combined “excellent” and “good” rating from 81 per cent of the respondents, up from 76 per cent last year.

Last year’s winner Mercer was pushed down to third position and saw a significant decrease in the number of fund managers that said they used the rater, as only 67 per cent of them, compared to 79 per cent last year, rated its research methodology as either “excellent” or “good”.

Morningstar also saw a decrease in its year-on-year performance across this category, with only 60 per cent of respondents describing its research methodology as “excellent” or “good”, compared to more than two-thirds last year.

SQM Research also finished in last place in this category, and saw a drop from around two-thirds to 54 per cent of respondents who rewarded it with “excellent” or “good” ratings for its research methodology. Additionally, 12.5 per cent of the clients described SQM Research’s methodology as “below average”. 

However, Morningstar and Zenith were the only two research houses whose methodology was rated as “poor” by fund managers at six per cent and 1.9 per cent respectively.

Rating satisfaction

SQM Research turned out to be the top performer in the rating satisfaction category, with half of the firm’s clients who participated in the survey describing the assigned ratings as “excellent”. 

Lonsec came second, with 37 per cent of the respondents deeming its ratings as excellent, which was a substantial improvement from last year when 26 per cent of respondents described the ratings as “excellent”.

Morningstar also improved its score this year, with one-third of the respondents being highly satisfied with the way the company had rated their products, as opposed to 14 per cent last year who rated it “excellent”.

Despite less than a third of respondents describing Mercer’s ratings as “excellent”, the firm scored the highest number of “fair” ratings at 64 per cent. 

This compared to Lonsec and Zenith that had 59 per cent and 57 per cent of fund managers respectively who said the ratings the firms rewarded for their products were “fair”.

Transparency

As far as the transparency of the rating process was concerned, Lonsec once again emerged as the top performer, attracting combined “excellent” or “good” ratings from 86 per cent of the fund managers. 

While 78 per cent of respondents that used SQM Research in the past 12 months described its transparency as either “excellent” or “good”, the research house was overtaken by last year’s winner, Zenith, which saw 80 per cent of its clients rating its transparency level as “excellent” or “good”. 

Across this category, SQM Research also managed to score the highest number of single “excellent” ratings and was the only research house that did not earn a single “below average” or “poor” rating for the transparency of its process.

At the same time, Morningstar scored the highest number (4.3 per cent) of “poor” ratings and second highest number (almost 13 per cent) of “below average” from fund managers who rated the company’s transparency rating process level.

Furthermore, around 43 per cent of the respondents said that Mercer’s transparency rating process level was “good” and a further 30 per cent described it as “average”.

Personnel

This year, Lonsec’s staff were among the most respected in the minds of fund managers, with 70 per cent of those who used Lonsec describing the company’s staff as “above average” in terms of their quality and experience.

Zenith, which won this category last year, came in at second, even though the company increased its score, with 67 per cent of all fund managers that had their products reviewed by Zenith over the past 12 months saying the quality of its staff was “above average” compared to 52 per cent last year. 

Subsequently, SQM Research grabbed third place with 61 per cent of respondents who were the firm’s clients within the last 12 months saying its staff quality and experience should be rated as “above average”. This was also the largest improvement across the whole category, as only 32 per cent thought the same last year.

Of the respondents that dealt with Mercer over the last 12 months, 57 per cent concluded that the quality of the company’s staff was “above average”. This represented a moderate improvement, compared to last year, when only half of the respondents felt the same.

The lowest score and the weakest performer in this category in the minds of fund managers, was Morningstar, which saw 40 per cent of the fund managers who turned to the company this year for product reviews saying that the quality of the company’s staff was “average”, and a further 17 per cent claiming openly that it was “below average”.

Feedback

In terms of feedback provided by research houses to fund managers, SQM Research overtook last year’s winner Zenith, with more than 71 per cent of SQM Research’s clients rating the feedback the company provided them with as “above average”.

According to 57 per cent of fund managers who participated in the survey and had their products rated by Zenith, the feedback was valued as “above average”. This was followed closely by Lonsec at 56 per cent. 

The category proved to be challenging for both Morningstar and Mercer as 24 per cent and 21 per cent of fund managers respectively, stated that feedback from these firms were “above average”.

Both Mercer and Morningstar had around 20 per cent of fund managers who described their feedback as “below average”.

Peer groups and sectors

For the first time, Money Management asked fund managers whether they felt the peer group and sector used by the research houses to evaluate their performance provided an accurate representation.

Across this category, Zenith and Lonsec received the highest ratings, with 83 per cent and 80 per cent of the respondents respectively, saying they felt the research houses chose the most accurate representation of the peer groups.

These two houses were followed by SQM Research which saw 75 per cent of its respondents saying the company’s selection of peer groups and sector for evaluation was correct. 

For Morningstar and Mercer, only 58 per cent and 57 per cent of respondents, respectively felt they had used an accurate peer group and sector to evaluate their performance.