Sixth edition of global research firm's biannual report adds two new disclosure dimensions to grading scale
Canada may lag most of its global peers when it comes to efficient taxation and regulation of mutual funds, but disclosure is where it manages to turn things around.
In the third chapter of its sixth biannual Global Investor Experience (GIE) report, Morningstar evaluated mutual funds and ETFs across 26 markets in North America, Europe, Asia, and Africa.
“For this chapter of our study, we evaluated markets based on six key disclosure dimensions, with the addition of Sales Disclosure and ESG and Stewardship Disclosure,” the global investment fund research firm said.
The six scoring dimensions, along with their broad weights, were:
- Simplified and non-simplified prospectus (30%);
- Fee disclosure (10%);
- Portfolio holdings disclosure (20%);
- Portfolio manager name and compensation disclosure (15%);
- Sales disclosure (15%); and
- ESG and stewardship disclosure (10%)
Canadian funds got a Disclosure grade of Above Average based on the focus on detail, language, and illustrations that are useful to investors. That included fee disclosures, which showed a clear-cut “fund expenses” metric that’s broken down into trading expense ratios and management expense ratios, under which management fees, trailers, performance fees, purchase/redemption charges, and other ongoing charges must be spelled out.
The report also highlighted the requirement for fund managers to include a section discussing fund performance within their disclosures, as well as release annual and semi-annual reports that include comparisons to the previous year’s results within 90 and 60 days of the end of the fiscal period, respectively.
“Although no formal regulation currently exists for required environmental, social, and governance disclosures, this continues to be a topic of interest for market participants in Canada, including regulators,” the report said.
It pointed specifically to efforts by the Ontario Securities Commission to recommend ESG disclosure requirements, as well as efforts by the Canadian Investment Funds Standards Committee and the Responsible Investment Association of Canada (RIA) to develop frameworks to identify “responsible” mutual funds and ETFs.
“In the realm of stewardship, Canadian fund managers are required to maintain records of how proxies were voted (including if they chose not to vote) on any resolution (not just shareholder resolutions),” Morningstar said. “Any shareholder is entitled to a copy of these records upon request.”
