By Scott Ronalds
Morningstar Canada, a mutual fund research firm, recently introduced Stewardship Grades for over 25 fund companies. In their words, the Stewardship Grade “goes beyond the usual analysis of strategy, risk and return. It is intended to assess the manner in which fund companies are run as well as the degree to which their managers’ interests are aligned with those of fund unitholders. While the grades are not intended to serve as buy/sell signals in isolation, they can help determine the difference between a great investment and one to avoid.”
We’ve written often about the attributes that investors should look for when hiring an investment manager. In other words, the intangibles that go beyond past performance – features like a manager’s investment process, experience, transparency, and whether or not they eat their own cooking (invest alongside their clients).
These features have long been hard for investors to assess and incorporate into their investment decision making process. Until now. Morningstar has done a comprehensive analysis of these qualities. It was a large undertaking that drew on a thoughtful methodology, thorough research, and the experience of their U.S. parent (Morningstar USA has had a similar rating system in place for a few years now).
The grading system is based on four components: Corporate Culture, Manager Incentives, Fees and Regulatory History. Fund companies receive a score out of 8 points and a corresponding Stewardship Grade ranging from A to F. A company must receive 7.5 points to receive an “A”.
We’re proud to announce that we received the top grade. And we’re beaming at the fact that we received the highest score (8 out of 8) of all the fund companies rated.
We’ve ridiculed industry awards that focus on short-term performance and other futile measures, but the Stewardship Grades address what we believe to be invaluable characteristics of an investment manager.