Morningstar launches stewardship ratings

Morningstar has launched stewardship ratings for Australian and New Zealand stocks, based a company’s capital allocation decisions and specific factors such as financial leverage, investment strategy, investment timing and valuation, in its assessment of a firm’s stewardship of shareholder capital.  

The Morningstar stewardship rating assigns companies an exemplary, standard, or poor rating and publishes the analysis supporting the ratings in the 'Stewardship’ section of company research reports. 

In the initial allocations, Morningstar said 13 Australian and New Zealand companies received exemplary ratings,  18 were designated poor, and a further 198 companies were designated standard. 

“The Stewardship Rating enables Australian and New Zealand advisers and brokers, institutional investors, and individual investors to screen and monitor the quality of capital allocation decisions by management teams and construct and manage portfolios of high-quality investments,” Morningstar head of equity and credit research, Joel Bloomer said.  

Morningstar said equity analysts assign ratings on an absolute basis, not relative to industry peers and most companies received a standard rating where there was no evidence its management team had made exceptionally strong or poor capital allocation decisions.  

The investment research firm cited Australia and New Zealand Banking Group as having an exemplary stewardship rating, for the bank’s focus on increasing shareholder returns and successful execution of strategy. 

In contrast, Morningstar said Kingsgate Consolidated’s poor operational and financial performance warranted a poor rating. 

In assigning the stewardship ratings, Bloomer said Morningstar deploys a consistent framework designed to facilitate more meaningful security comparisons.