When selecting funds for your portfolio you may look at the track record, the ongoing charge or the manager’s approach to investing. But one important consideration you may not have paid enough attention to is the parent company which runs the fund.
The company behind the fund will determine how much resource the manager has to run the strategy, the number of researchers and analysts there are available to help them, how effective compliance and risk monitoring is, and whether environmental, governance and social (ESG) factors are emphasised in the investment process.
Parent is one of the five pillars that Morningstar takes into account in analysing funds. In assessing a company, a number of factors are considered: the quality of the firm’s fund range; fees; average sustainability rating across its fund; the split across active and passive strategies and across different asset classes.
Morningstar analysts prefer firms where there is a culture of stewardship and those which put investors first, rather than companies that are too heavily focused on salesmanship.
Morningstar’s Fund Family 100 report compares the largest 100 fund families in Europe as determined by their assets under management. While the full report goes into detail on all 100 firms, here we look at some of the top-ranking funds by various key measures.
Top Ranking Firms for Top-Rated Funds
Here we look at the top 10 firms by the percentage of their assets which are held in funds that hold a Morningstar analyst rating of Gold, Silver, Bronze or Neutral.
The top three spots are held by Fundsmith, First State, and PIMCO. Both Fundsmith and PIMCO have Positive Parent Pillar ratings, whereas First State has a Neutral rating.
Fundsmith stands, in our view, as an example of an investment boutique that is well-placed for investment excellence. The group has just three strategies, the funds' fee structure is reasonable, and key personnel are heavily invested in the funds they run, making them well-aligned with investors' interests.
On a much larger scale, Pimco has succeeded in establishing a strong (but also rigorous, demanding, and intense) investment culture. The firm is back to a faster pace of hiring following a rough patch of asset flight; it is now taking more proactive steps in succession planning. Most of its funds have produced strong results over the long term, as evidenced by the firm's high-average success ratios of 66% and 74%, respectively, over five and 10 years through July 2019.
Top Ranking Firms for Manager Tenure
Manager tenure is a measure of team stability. The top 10 firms here include Lazard, Artemis and MFS, all of which are positively rated by Morningstar analysts.
Lazard Investment Management benefits from an investment-centric culture with good manager retention and low analyst turnover. In particular, the firm has a long-running emerging markets capability, but also has strengths elsewhere, including in several developed markets equity offerings.
Artemis is also a solid steward of investors' capital. Its manager ranks are deep, managers are invested in the funds they run, and they have significant investment experience. The firm has also made the process of launching new strategies more rigorous and has taken steps to better facilitate manager transitions, which should help foster continuity.
Top Ranking Firms for Sustainability
Finally, the top 10 firms ranked by the percentage of their funds that earn Above-Average Morningstar Sustainability Ratings also include three positively-rated parents: Fundsmith, MFS, and iShares.
MFS, which also ranks amongst the firms with the longest average portfolio-manager tenure, has extended its record as a responsible parent. The firm's culture is team-oriented, which mitigates key-manager risk. While only a portion of the firm's funds have an explicit sustainability mandate, the focus on high-quality franchises and sustainable earnings growth in several of its equity funds typically results in a bias toward companies with above-average sustainability ratings.
You can view the full report here.
