A biennial report into global best practices for managed funds has revealed Australia continues to lag well behind other developed countries on portfolio holding disclosure requirements, with many retail investors largely in the dark over what securities they hold in their portfolios.

Morningstar’s latest update on the Global Investor Experience study – released this week – says Australia “stands alone as having clearly the feeblest disclosure regime among the 26 markets in Morningstar's GIE study universe and a lack of political will to implement meaningful change.”

That's because investment managers in Australia aren’t legally required to disclose what’s in their portfolio to the public, or their investors. 

The scathing assessment notes recent events like the collapse of Silicon Valley Bank in the US and the wipeout of Credit Suisse’s hybrid securities highlight the importance of timely reporting on portfolio holdings disclosures, and the need for enhanced efforts in some markets.

“Fund investors in markets with best practice disclosures had a relatively clear picture of their exposures,” says Grant Kennaway, Morningstar’s global head of manager selection and author of the report.

“Fund investors in markets such as Australia were left in the dark as to what their exposure to these securities may have been.”

Morningstar receives portfolio holdings for 42% of Australian funds on a monthly basis, and another 9% quarterly. However, for 44% of funds, Morningstar receives no portfolio at all. Morningstar is not allowed to make these holdings public, but does use this information to make an assessment of a fund.

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That compares to the United States, which the report highlights as a “leader” in disclosure for portfolio holdings, where funds are required to report the complete list of their holdings on a quarterly basis.

Mexico is the only market in the Morningstar GIE universe that requires weekly portfolio disclosure of material positions.

“Mexico and India still set the bar for monthly disclosure of full portfolio holdings,” Kennaway says.

See more on how Australia ranks against other countries on portfolio disclosure here.

“Transparency is important to investors as it helps them make better decisions and creates trust in the vehicles used for investment and the firms that manage client assets.”

As well as portfolio holding disclosure, the report focuses on several key disclosure dimensions, including fee disclosure, environmental, social and governance (ESG) and stewardship disclosure, and the disclosure of portfolio manager names and compensation.

Here are 3 takeaways from the report:

1. Europe is a pacesetter in ESG disclosures, while Australia lags


With few exceptions, Kennaway says ESG and stewardship disclosure has been the focus of activity for regulators worldwide, with much environmental, social, and governance regulation either introduced, or in the pipeline, that will provide more-standardised disclosure to inform investors' understanding and comparison of products.

This should help prevent greenwashing—or using ESG claims in fund marketing without ESG principles truly guiding investment decisions—from being a significant issue for investors.

Europe remains the region with the most prescriptive and extensive ESG disclosure requirements, encouraging asset managers to substantiate their products’ objectives and ESG performance.

Australia has not introduced any ESG-related regulations to provide more standardised mandatory disclosures since the 2020 Morningstar GIE Disclosure Edition.

Australia also continues to lack a code or regulation that would require fund disclosure of stewardship activities. ‘Stewardship’ is the allocation, management and oversight of capital to create long-term value for clients and beneficiaries.

The table below shows Australia has neither dealt with existing deficiencies in fund disclosure practices, nor adapted to changing investor expectations around ESG and stewardship disclosure.

Regulatory Amendments Since 2020 Morningstar GIE Disclosure Edition

Australia's Department of Treasury has recently completed consultation with the finance industry to design appropriate climate related financial disclosure requirements.

The government states it is "committed to ensuring large businesses provide Australians and investors with greater transparency and accountability when it comes to their climate-related plans, financial risks, and opportunities."

The report states that while this has the potential to ultimately benefit fund investors, no details are available at this time.

2. Funds that fight transparency are likely to generate bad outcomes in the long run


The report says the best regulatory approach is rooted in greater transparency, which helps investors make better decisions and creates trust in the vehicles used for investment and the firms that manage client assets.

“In the long run, mutual fund industry stakeholders that fight transparency are likely to generate outcomes that are bad for investors and bad for the industry itself,” Kennaway says.

“Hence, we are pleased with the incremental improvements some markets have made in improving disclosure practices since our previous study but there is still considerable scope to improve the presentation and delivery of disclosed information to make it more accessible, understandable, and engaging for end investors.”

He acknowledges too much information risks intimidating investors, rather than engaging them.

“The consequence of increased disclosure is product providers having to pack more information into existing and new documents,” Kennaway says.

“Unless done well, providing investors more information than ever comes with the risk that disclosures intimidate more than engage.”

3. Australia ‘blows chance’ to make meaningful changes to portfolio disclosure


Unlike managed funds, superannuation funds have some disclosure obligations, but the bar is very low.

Kennaway says a decision to water down the proposed legislation on superannuation portfolio holding disclosure – which were brought into effect last year – was a disservice to Australian investors.

“Australia blew a chance to improve its portfolio holdings disclosure regulations in November 2021 when, after drafting median global standard regulations, the government caved in to lobbying from vested industry interests to deliver what are essentially meaningless asset-allocation disclosures,” he says.

Current rules force superannuation funds to disclose the identity, value and weighting of the listed securities they hold every six months. But outside of stocks, investors are largely in the dark.