Scoring the value deal

Research houses are finally getting the big thumbs up from funds managers, according toTheMoneyManagementRating the Raters Survey.

Some 90 per cent of participating funds managers (Pie Graph 1) agreed product and fund manager research is essential to the process of reviewing a manager.

Further, more than half the funds managers surveyed (60 per cent) agreed research house ratings gave them an insight into their businesses, while 80 per cent believed ratings helped in benchmarking against competitors, revealing funds managers hold the value add of research houses’ review process and subsequent rating in high regard.

However, the results are not all good news. A majority consensus shifted when funds managers were asked to look specifically at what services the individual research houses provided.

More than half of the respondents (65 per cent) believed the services of Australian research houses were not clearly differentiated (Pie Graph 2).

No one research house was regarded as significantly more useful to the funds managers than the others, with van Eyk and Assirt both scoring 38 per cent.

Funds managers’ confusion was supported by this comment from one large funds manager.

“Morningstar and InvestorWeb have age weight constraints that override qualitative assessment, which is not good. Assirt and van Eyk have freedom to assign any rating, even if the fund is relatively new, which is a positive.”

But one property focused funds manager was not impressed by the services of any of the research houses, according to this survey response:

“We have never used Morningstar. Assirt do not cover property effectively and seek to charge too much to a manager before undertaking research. Lonsdale and InvestorWeb use research fees as a gatekeeper to their adviser network and van Eyk have a perceived bias against direct property. Consequently, none of these research houses is useful to the property industry.”

It is fair to say funds managers will always have their own views on which is the best research house, with opinions fluctuating depending on the funds manager’s rating experience and how it is currently rated.

“Van Eyk’s ratings provide us with the best indication of our funds against their relevant news. InvestorWeb is the one to watch over the next 12 months. We are starting to place more faith in its research every year.”

Advance Funds Management Business and Research Services head Phil Filippelis says while the initial interview process of the research houses is similar, the direction of the remainder of the review process and the outcome can differ dramatically.

“They all start off with the same interviewing process but the degree of interrogation varies depending upon the experience of the analyst [and reflecting differences in the outcome] for example, Morningstar’s methodology is biased more to past performance and quantitative, while van Eyk and Assirt are more qualitative,” he says.

“It does vary, but for the ultimate test of value add you can look at the historic approved list and ratings, and see if it stacks up in the current market.”

The Money Management Rate the RatersSurveyresults confirm undisputedly that funds managers accept the concept of research, and the value it holds.

However, arguably the most influential measure of value for funds managers would be the affect research has on fund inflows.

Table one illustrates that some 65 per cent of respondents identified van Eyk as significantly influencing fund inflows.

Interestingly, of the remaining 35 per cent, 20 per cent believed van Eyk had no influence at all, while 15 per cent believed there was a degree of influence.

Morningstar came in second with 41 per cent of respondents recognising it had a significant influence on a funds manager’s inflows, with a further 29 per cent saying Morningstar had no influence. An equal percentage identified Morningstar as having a degree of influence.

Such strong responses fell short when funds managers were asked to what degree they believed the outcomes of research reflected the strengths and weaknesses of their business.

The highest rating went to van Eyk, which scored 21 per cent. The strongest responses showed the funds managers surveyed believed research outcomes only partially reflected their businesses’ strengths and weaknesses, this time with Assirt taking the highest percentage of 73 per cent.