By Scott Ronalds

Morningstar Canada published its updated Stewardship Grades for 26 fund companies yesterday. The grades are designed to help investors further research, identify, and compare fund companies that do a good job – or a poor job – of aligning their interests with those of fund shareholders.

Stewardship Grades were first introduced in 2004 in the U.S., and a study published earlier this year found that funds with top grades were more likely to survive and deliver competitive risk-adjusted returns.

Morningstar introduced their Stewardship Grades in Canada last spring (see our blog on the topic), and Steadyhand scored favourably. In fact, we were the only company to receive a perfect score (8 out of 8) along with an “A” grade.

We’re proud to announce that we received an overall A grade once again. Of the 26 companies graded, four received the top mark (click here for the full list).

There are four components considered in the grading process: Corporate Culture, Manager Incentives, Fees, and Regulatory History. Morningstar made some slight changes to their process this year, motivated in part to better align the Canadian methodology with the approach employed by their U.S. fund analysts. The firm now assigns more weight to the Corporate Culture and Manager Incentives components. Steadyhand scored A’s on Culture and Incentives.

We’re unhappy that we scored a B on Fees this year, although we do understand that some other 'direct’ companies have lower fees before our fee rebate program kicks in.

Morningstar notes, “The Stewardship Grade goes beyond the usual analysis of strategy, risk, and return. It helps investors to assess a fund based on the degree to which the fund's parent – the management company offering the fund – has its interests aligned with those of fund shareholders. The methodology also examines whether shareholders can expect their interests to be protected from potentially conflicting interests of the management company.”

We pay little heed to industry ratings and awards that focus on short-term performance, but the Stewardship Grades address important intangibles that are not captured in a review of past performance alone.