FUNDS in Singapore are expensive, are tied to advice that is not priced in a transparent manner, and are backed by inadequate disclosure reports.
The mediocre showing earned the mutual fund industry here an overall C grade - together with many others that include Hong Kong - in a biannual Morningstar Asia report released on Tuesday.
This puts Singapore at the middle of a 25-country pack, with South Korea and the United States graded A, and China receiving the lowest score of D+. The lowest possible grade is an F.
The “Fourth Global Fund Investor Experience” report evaluates each country’s fund industry in four areas: regulation and taxation, disclosure, fees and expenses, and sales and media.
"While there are no major weaknesses, Singapore is more expensive than other markets in this study and disclosure practices have room for improvement, specifically around portfolio holdings disclosure," Morningstar said in its report.
Morningstar highlighted the high cost of advice – and the poor transparency around it – as captured in fund fees. Investors here are still paying for advice either through one-time fees deducted from the investment amount – what is commonly known as a front-end load fee – or ongoing expenses that are embedded in expense ratios, the research house noted. Such ratios are typically a percentage of total assets. As a comparison, equity funds in the US – which have economies of scale and operate in highly competitive markets – have an average expense ratio of 0.84 per cent. In Singapore, this stands at 1.73 per cent.
Morningstar added that while Singapore's disclosure requirements for portfolio holdings are similar to many markets, “the actual practice of managers reporting portfolios falls behind many in the study”.
“Similarly, there is limited management commentary on performance for investors," it said.
Singapore got a lift in ratings for its taxation policy, given that mutual fund investments are not taxed.
Its Financial Advisory Industry Review, to be implemented over the coming year, will also regulate remuneration for financial advisers such that it is no longer solely determined by sales, Morningstar added.
China was marked down significantly for the lack of standardisation in calculating the fund expense ratios, which makes it difficult for investors to compare total costs effectively. By Morningstar’s calculations, Chinese equity funds charge 1.76 per cent in fees.
It also earned an average grade in the area of regulation, given that Chinese investment funds need permission to invest assets overseas. China regulates fund flows by imposing investment quotas.