S'pore loses top spot in fund investor experience

S'pore loses top spot in fund investor experience
PHOTO: S'pore loses top spot in fund investor experience

SINGAPORE lost the pole position in Nasdaq-listed Morningstar Inc's Global Fund Investor Experience 2013 report, getting an overall grade of B this time.

The United States, which previously shared the top spot with Singapore, got the highest score of A for the third time in terms of investor-friendly practices. Hong Kong, which was graded C in 2011, obtained a C-.

The biennial report - which ranks countries on the A to F scale - assesses the experiences of mutual fund investors in 24 countries across North America, Europe, Asia and Africa. South Africa scored the worst, a D.

"While the United States is not a leader in the area of Regulation and Taxes, it has the world's best disclosure and lowest expenses. South Africa, in contrast, received the lowest grade largely because of poor disclosure practices," said the investment research house.

Countries are evaluated based on four categories: Regulation and Taxation, Disclosure, Fees and Expenses, and Sales and Media. The report looked at investor protection, transparency, fees, taxation and investment distribution.

It found that "Singapore is more expensive than many markets in this study. Disclosure also has room for improvement, specifically around simplified offering documents".

Singapore received the top score of A for Regulation & Taxation; B for Disclosure; C for Fees and Expenses; and B- for Sales and Media. In the previous survey, Singapore scored A for the latter.

"The complete absence of taxes on mutual fund investments is a feature unique to Singapore,'' Morningstar said.

Overall, Thailand, Hong Kong and Singapore have the best tax systems for fund investors, and Norway, Sweden, Denmark and the United States have the least attractive after tax returns.

Singapore can do more in the area of disclosure. The information in the packet containing a product highlight sheet and a fact sheet is not comprehensive. It also noted that documents typically are delivered for one fund at a time.

In addition, while funds domiciled in Singapore must disclose the manager's name and investment industry history, start dates are not included, "so investors can have a hard time tying specific performance to an individual manager".

Singapore's Fees & Expenses have the most room for improvement. Investors in Singapore continue to pay for advice through front loads or ongoing expenses embedded in Total Expense Ratios.

"Investors don't often have the choice to avoid these fees, and this leads to a low level of transparency around the cost of advice," it said.

When it comes to Sales & Media, Singapore investors have a decent experience. Morningstar noted that more than 80 per cent of funds are sold through intermediaries offering funds from multiple providers.

Morningstar believes that regular and frequent media coverage of funds is a best practice. However, in Singapore, like in Sweden, the industry is irregularly covered.

Morningstar said most countries struggle to update their regulations to address new portfolio management techniques. It noted that "regulatory enforcement is comprehensive across the globe, but not proactive". Other countries which received a B are Netherlands, Taiwan and Thailand.

The latest report included first-time reviews of fund investor experiences in Korea and Denmark. Korea came in second with a B+, while Denmark emerged eighth with a B-.

Morningstar noted that funds in Korea are required to disclose the name of the portfolio manager along with their prior three years' experience. Korean investors also face a favourable tax regime.

Almost all European countries are graded at B- or C+. The other countries receiving average grades include Australia, Canada and China. At the bottom are Japan with a C, Hong Kong and New Zealand with C- grades, and South Africa with a D.

On Hong Kong's C- grade, Morningstar said the fund industry did not deliver the best experience for investors. Its grade reflects above-average investment costs and poor disclosure practices.

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