Zenith back on top

lonsec mercer Zenith morningstar sqm rate the raters

9 July 2021
| By Oksana Patron |
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The first part of Money Management’s 2021 Rate the Raters survey, which aims to gauge fund managers’ sentiment towards the key research houses, has seen Zenith return to the top of the podium, after last year’s fund managers’ indecisiveness. 

The 2020 survey delivered a mixed picture with managers being unable to decide an overall winner and opinions split between Zenith, SQM Research, and Lonsec.

This year, Melbourne-based research house Zenith won five out of seven categories as managers, who shared their opinion with Money Management, rewarded the firm with the highest ratings for its research methodology, personnel quality, feedback and the most accurate selection of the peer group and sectors they used for evaluation of funds and to provide a comparison base. On top of that, Zenith attracted the highest number of fund managers, of those participating in the study, who had their products rated by this research house in the past months. 

At the same time, the fast-growing North Sydney-based SQM Research was recognised across two categories as managers decided the firm had provided the highest level of transparency for its process and its ratings were the most satisfactory.


After the initial disruptions caused by COVID-19 last year, fund managers returned their focus this year to the long-established issues that impaired their relationship with research houses. These included the raters’ coverage model, pricing and how the research houses approach and measure environmental, social, governance (ESG) attributes.

One manager said that, while there was a high expectation of managers to have detailed policies in place with regards to the ESG, not all research houses applied the same approach within their own organisations. 

The survey’s results also revealed managers’ issues with increased costs, from both platforms and research houses, and stressed the importance of an analytical approach, better presentation outcomes, regular reporting and depth of analysis from research houses. 

At the same time, fund managers pointed to the potential conflicts of interest which arose in the case of some raters who were, in their eyes, gradually transitioning from research to asset management. 

Following this, managers said they were expecting a wider coverage of managed accounts but, they warned, some researchers were already too focused on their funds management and separately managed accounts (SMA) capabilities and, due to the potential conflicts of interest, did not offer SMA multi-asset ratings.

Zenith was once again recognised by managers for the stability of its research team and low staff turnover, followed by high quality of its research, while Lonsec struggled the most with the ongoing high turnover of senior analysts.


This year the results once again confirmed that Zenith and Lonsec were the most-frequently chosen research houses among fund managers, of those who have had their products rated by more than one rater. According to the data, Zenith came on top, as close to 95% of respondents confirmed their products had been rated by this research house, and was traditionally followed by Lonsec which saw a similar figure (91%) of those fund managers participating in the study who said they had received ratings from this research house.

Both SQM Research and the historically third most-frequently used research house Morningstar, which came third in 2020 and 2019, were almost on par this year as close to 70% respondents (68.5% and 68.6%, respectively) had their products rated by these two research houses.
At the same time, less than half of managers who chose to share their opinions with Money Management had seen ratings assigned to their products by Mercer.


As far as the research methodology was concerned, fund managers said that, although all research houses had ‘style biases’ and their processes were very different, they all added value. 

However, while researchers continued to rate managers’ ability to enhance their process, managers revealed that some research houses were slow themselves in this department and were significantly lagging behind with their own processes.

Also, some raters exhibited a “demonstratable preference towards active managers within their research methodology and product coverage”, others lacked engagement with managers which led to outdated ratings, or did not fully understand the funds they were rating. 

Additionally, their quantitative assessment often had a larger impact on their overall research methodology than the research houses stated, the survey revealed.
At the same time, some research houses were praised for their professional and thorough methodology, with a right amount of focus on risk for return, instead on over-concentrating on social obligations, as well as for drilling down deep into funds’ strategies and good rigour around their reviews. 

Zenith managed to retain its top spot from last year and attracted the highest proportion of either ‘excellent’ or ‘good’ ratings in this category from 90% of fund managers who rated its research methodology. SQM Research came second after having attracted an above average ratings for its methodology from 81.8% of respondents. The Sydney-based research house was closely followed by Mercer which saw its research methodology rated as either ‘excellent’ or ‘good’ by around 80% of respondents. 
Similarly, the research methodologies of Lonsec and Morningstar were rated as above average by 77% and 52% of the study’s participants, respectively.


SQM Research once again confirmed its strength across this category, with the highest proportion (37.5%) of fund managers respondents who described their level of satisfaction from ratings the company granted to their products as ‘excellent’. 

The firm earned the trust from managers thanks to its attitude, fairness and ability of managers to understand the process and how the research house went about deciding the rating. Some managers also appreciated the company’s “excellent understanding of property sector” and its specialist knowledge across the mortgage sector.

Following this, Zenith also retained its second position across this category, however with a lower proportion of managers (33%) who rated the firm’s rating quality as ‘excellent ’compared to last year (39%).

Lonsec, which was demoted to third spot last year, maintained this position with 31% of fund managers participating in the survey having described their level of satisfaction with Lonsec’s rating as ‘excellent’.

Mercer, on the other hand, saw the highest proportion of managers who rated its ratings’ capabilities as ‘average’ and only 17% of respondents described the company’s ratings as ‘excellent’.

Following this, Morningstar ended up this year with 76% of managers commenting on its ratings as ‘average’ and only 10.5% said that their level of satisfaction from the rating was ‘above average’.


The managers decided that SQM Research offered the best transparency as the research house managed to attract the highest proportion of combined ‘excellent’ and ‘good’ ratings (82.9%) in this category, positioning itself well ahead of other groups.

At the same time, fund managers pointed out that transparency levels varied across the board. According to them, research houses should be more consistent with their messaging regarding their strategies and more precise around what would be included in the sector review. The survey also found that research houses rarely offered feedback in terms of which aspects managers should improve in order to have their rating changed.

SQM Research was followed by Zenith, which gathered a combined rating of either ‘excellent’ or ‘good’ from 76.4% of respondents, and Lonsec which saw its transparency rated as above average by around 65% of respondents.

Following this, Mercer came ahead of Morningstar, as 56% of fund managers participating in the study assigned an either ‘excellent’ or ‘good’ rating for its transparency while Morningstar earned above average ratings from around 54% of respondents.


Commenting on personnel quality and level of experience, fund managers once again named high staff turnover at some research houses as one of the key issues which impacted the quality of the reports and reviews. A number of managers identified Lonsec as one of the research houses struggling the most with high turnover of senior staff and said it saw “too many changes in the research team”.

Zenith, on the other hand, was appreciated for its low staff turnover and a stable team and “best overall combination of diligence and qualitative analysis”. Also, according to managers, Zenith’s personnel represented the most satisfying level of competence and attracted the highest ratings in the study, as 81% rewarded it with ‘above average’ ratings in this category.

The second-best research house for highest staff quality was SQM Research, which gained positive feedback from 73% of respondents who said its staff were ‘above average’ levels.

Additionally, managers praised SQM’s research team for a high level of experience in portfolio management, quick turnaround and detailed reports.
Lonsec, which came third in this category, was recognised by less than half of all respondents (48%) who assigned it an ‘above average’ rating in this category.


In terms of general feedback, managers pointed out that it was crucial for research houses to demonstrate high levels of engagement and be “direct and to the point”. 

Zenith, which managed to earn the highest proportion of positive ratings in this category with the quality of its feedback being rated by 57% of respondents as ‘above average’, was described as “relatively good at it” by one manager. Other managers said Zenith’s high level of insight translated to the comparable level of feedback, making this research house’s feedback “the clearest”.

Across the same category, SQM Research received similar feedback from only a slightly lower number of fund managers, of those who rated its feedback, as 51% of respondents described the quality of its feedback as ‘above average’.

At the same time, Lonsec’s feedback was described as better than average by less than 40% of respondents, although some managers reflected on the fact that the firm has been working on improving its feedback.


Lastly, when it came to the accuracy of the peer group and sector used by individual research houses to evaluate the performance of the funds, Zenith emerged as the strongest player. Some 92% of respondents confirmed that the firm’s peer group selection provided an accurate representation for their funds.

SQM Research arrived second with 85% of fund managers, according to data, being satisfied with its selection of the peer group. Lonsec, however, came in third place this year as only 78% of the managers participating in the study agreed the research house had done a good job and selected the most accurate representation of the peer group.

Further to that, Mercer’s selection of the peer group satisfied close to 67% of respondents while Morningstar’s selection was rated as sufficient by only 60% of those managers.

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