MorningstarInc managing director Don Phillips has stated the style of research undertaken by the Australian operation of Morningstar will not change and the group will retain its qualitative focus.
Morningstar Australia use quantative and qualitative analysis with a 50/50 split and Phillips says despite a number of recent changes to the local process there was no intention of dropping the qualitative analysis
He says the group makes use of qualitative analysis in the US as well as in Australia but is restricted from using it in ratings reports due to regulatory issues in the US.
“There is a view that Morningstar favours quantative analysis over qualitative but that is a requirement of operating in the US but we remain big believers in the use of qualitative information and we will continue to offer them both in Australia as that is an expectation of the market,” Phillips says.
Last week Morningstar Australia announced it had changed it research process with the research house now calculating both a three and five year quantitative rating for fund managers, which will then be combined to produce an overall quantitative rating, as part of a greater change in process for determining the quantitative ratings.
The process, known as the Morningstar Risk-Adjusted Return (MRAR), will penalise the risks inherent in returns from all funds across all asset classes equally.
The process differs from Morningstar’s previous quantitative assessment methodology, which compared a fund’s risk and return characteristics only against those of similar funds.
The group has released a large number of business and management strength ratings, which make up half of the groups qualitative ratings or 25 per cent of a full report as previously released by Morningstar.
However Phillips says this part of the process has almost concluded and Morningstar will now start to produce sector ratings at the rate of two per week until the end of the year.
He says the research house had adopted this method so as to compare managers in an asset class at the same time and not at different times of the investment market.
The business and management strength and sector ratings would be updated on a rotational basis, while the quantative data would be updated on a monthly basis.
The moves cap off a turbulent year for Morningstar in which Phillips says “the business was haemorraging money” with operations in Brisbane, Sydney and Auckland now consolidated chiefly into the Sydney office.
“In the last 12 months we have had to redo the infrastructure of the business and the database of research and integrated the business with the US to keep costs down.
