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Morningstar gives National Bank Securities the worst mark for stewardship

Many investors are probably familiar with Morningstar Canada's grading for mutual funds.

Now the unit of U.S.-based investment research provider Morningstar Inc. has started to mark individual Canadian fund companies on stewardship. The grading aims to give investors an idea of how well a firm serves the interests of investors. The rating system, which ranges from A to F, looks at the areas of corporate culture, manager incentives, fees and regulatory issues. Numerical scores up to 8 are given and that translates into letter a grade.

Only five of 27 firms surveyed got an A. They are Beutel Goodman & Co. Ltd., Capital International Asset Management (Canada) Inc., Chou Associates Management Inc., Mawer Investment Management Ltd. and Steadyhand Funds Inc.

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And only Steadyhand, a small no-load fund company, got an A with a perfect score of 8. "Its low-fee, direct-to-client nature underlines founder Tom Bradley's commitment to putting performance (and hence, unitholders) before asset growth," says Morningstar. "In many ways, the firm has provided the very things we've been screaming for in a fund company. While its small size creates some uncertainty, the firm earns top marks for stewardship."

Fifteen firms were graded a C, including all the ones that are part of publicly traded fund companies in Canada. Even RBC Asset Management Inc., the largest fund company in Canada, only got a C.

No firm got an F, but National Bank Securities Inc. got the worst mark. It was handed a D.

"National Bank Securities offers a reasonable lineup of no-load funds under the National Bank and Altamira brand," Morningstar says. "However, its troubled acquisition of Altamira, the ensuing employee turnover, poor communications and questions about the firm's risk management have lowered the firm's overall grade."

Morningstar acknowledges that the grades are primarily based on qualitative criteria, such as the analysts' assessment of the firm's investment process and whether the firm is focused on investment or gathering assets.

You can check the grading at Morningstar Canada Website. The grades are part of Morningstar's new Premium Website, and the information will be offered free to registered members until September. Judging by the mediocre grades, the impending pay wall will be a godsend to many firms.

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