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By Adam Fisch and Serkan Altay | 09-25-2012

Stewardship Grades- The deciding factors

A basic overview of what goes into the grades.

Adam Fisch: We recently launched our 2012 Morningstar Stewardship Grades for 26 fund companies in Canada, and we thought it would be a good opportunity for us to go into some more detail and expand on what goes into stewardship and what sort of factors we look at. Now, what we're discussing here is not a comprehensive list, but it does give a good sense of what goes into the grades.

The first factor and the one that gets the most weight is corporate culture. It's a largely qualitative assessment on whether we feel that a fund company is putting investors before their own profits.

Serkan, why don't you take us through some of the factors that go into the corporate culture score?

Serkan Altay: Well, the corporate culture score carries the most weight in our survey. And what we are basically trying to assess from this is whether or not the company is taking its fiduciary duty towards its fund unitholders in an effective manner. So, some of the things that we look at are things like; is the company focused on gathering assets or are they focused on the unitholder? What is the level of communication with the unitholder? What kinds of communication? Is it accurate? Is it timely?

And another thing which we look at – which is key – is whether or not the types of funds which the company has launched are in line with their expertise. So, are we going to see a company that focuses and specializes on natural resources all of a sudden launching a European Equity Fund? So, those are the kinds of things which we assess.

Fisch: Yeah. Another one of the factors that we focus on is manager turnover. We like to see consistency across the fund company and – a company's ability to retain top talent and really foster their growth over the years. It's our view that having a company that switches around managers or that loses top talent would really struggle to keep up to its competition compared to one that is able to retain the best managers for each mandate over a long period of time.

Altay: That's right. And what we ultimately try and see is whether or not there is an alignment of interest with the fund unitholders as well.

Fisch: For more information on our Stewardship Grades you can visit our website at www.morningstar.ca.

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