Australian funds last on disclosure: Morningstar

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Australia has the world’s worst practice in portfolio holdings disclosure, according to Morningstar, with an analyst calling the lack of transparency an “indictment” of the local investment industry.

The finding has been mentioned in a new report from the research giant on the sustainable investing landscape for Australian fund managers. 

Every two years, Morningstar runs a global investor experience study benchmarking the performance of 26 global markets. On portfolio holding disclosure, Australia has come last, without any form of regulated disclosure.


While there may be some guidance, having easy access to full portfolio holdings of funds is not easy, the report noted.

Grant Kennaway, global practice leader of manager research at Morningstar said the rise of sustainable investing and awareness around sectors and holdings had brought Australia’s “terrible” portfolio holdings legislation to the forefront.

“It is an indictment on a country that wants to be a global financial centre, that we do not have regulated portfolio holdings disclosure,” Mr Kennaway said.

“I think the sustainability agenda should hopefully bring attention to this point, because if I’m an average investor, that is investing my money and I want to invest it sustainably, I deserve to know what’s in my portfolio and the Australian industry has gone out of its way to avoid that disclosure.

“The bit that upsets me a bit is the more the industry globalises, the more we see the strategies available for sale in Australia that we can’t get the portfolio holdings [for], but in markets where it’s regulated, the same strategy makes its holdings available. The technology’s there to make the information available.”

At the end of June, retail assets invested in sustainable investments were estimated to be at $19.9 billion, a 21 per cent rise year-on-year. 

Sustainable products also held their own against their counterparts, with around 70 per cent of sustainable funds placed in the top half of their respective Morningstar category peer groups during the first half of 2020.

But Australia is still considered way behind its international peers in the sustainable market, particularly because of regulatory drivers, Mr Kennaway commented.

“Regulations have been driving a lot of change with the European market, the EU’s been very active in bringing out a taxonomy about sustainable investing and we expect a lot of those European initiatives to flow through to the Australian marketplace, given what a market leader Europe is,” he said. 

“I think that’s something for us as an industry to watch. I think the Australian regulator has to be wary or careful because Europe is setting the bar and the global asset management industry will probably inherit what Europe’s doing. Because they’re the first mover and they’re setting the trend and they’re building a taxonomy.

“So, if the Australian industry doesn’t step up, we probably will receive what’s coming from Europe.”

More funds banning thermal coal than nuclear power

Following the volatile first quarter, estimated net flows to sustainable funds were muted in the following three months, but still positive at $335 million. 

In July, Morningstar identified 108 Australian and New Zealand-domiciled sustainable investment products through its intentionality framework. 

Of the local sustainable funds, 87 employed a form of exclusion from contentious areas, with 85 barring tobacco and 81 excluding weapons companies that derive major revenue from things such as nuclear weapons, land mines and cluster munitions.

Gambling, adult entertainment and thermal coal were the next most common exclusions. Interestingly, more funds ditched exposure to thermal coal than over the nuclear power sector. 

“To me it shows a change in mindset when we think about the climate agenda that more and more people are concerned about thermal coal,” Mr Kennaway said. 

There are a growing number of choices for funds that use ESG incorporation approaches, but limited options when it comes to environmental sector funds, the report noted. In the segment, renewable energy and water-focused funds were the most prevalent. 

Australians also have a vast choice in funds that explicitly exclude exposure to controversial weapons and tobacco, but limited choice in funds that don’t have animal testing, fur or leather, palm oil or pesticides.


Australian funds last on disclosure: Morningstar
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].


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