Three ways to prepare for 2019… and beyond

What a difference a year makes. Perhaps never has this been truer than comparing the excitement and outperformance investors enjoyed in 2017 with the turbulence and uncertainty that shrouded them during the last 12 months, across assets and geographies.

Although 2019 has started off well, market outlooks generally bleak. The entire financial services industry globally is grappling with how to navigate tricky times ahead – from financial market volatility to trade tensions to emerging markets stress.

At Morningstar, we clearly feel the impact of these challenges too. Yet we believe that adopting a genuinely long-term mind-set will stand investors – along with advisers, fund houses the rest of the community – in good stead.

We are putting this philosophy into practice by investing globally in the expansion of our business. In Asia, this commitment could be seen in our decision to grow our teams in 2018 in key markets like China and India. We have also expanded our Hong Kong space with a view to hiring more talent going forward. This all stemmed from us identifying a need for more resources to respond to what we expect will be increasing challenges for the industry in more difficult environments.

So, while we are also cautious about the investment landscape in the short term, our view is that anyone with a vision and appetite to plan beyond 2019 will be well-placed to weather the current storm.

In particular, we believe our clients and the broader industry need to consider three key trends as they prepare for the months – and years – ahead.

Dealing with regulatory requirements

?Amid the recent volatility, a key challenge to emerge for market participants has come from the ever-complex and demanding regulations that are driving greater disclosure and transparency.

Although we don’t expect we will see a replica in Asia of the EU’s MiFID II, more and more disclosure is definitely on its way. It is likely to take different formats from one jurisdiction to the next, but all in the name of fairer and more open markets.

Inevitably this will require investors and intermediaries to do greater product due diligence as part of new obligations.

To help the industry achieve this, we have created a localised, governance-focused solution. In a nutshell, this is a set of products and services for clients on both the distribution and asset management sides of the business to be able to meet the increasing burdens of transparency and disclosure.

Embracing technology-led transformation

Today’s new digital paradigm is another priority for all players in the investment community, whether they are looking to reduce cost, boost operational efficiency, improve investment suitability or enhance performance.

From artificial intelligence (AI) and machine learning to blockchain and fintech – all firms need to constantly review and implement new technologies and processes that enable them to leverage this new era of robo advisers, more digitalised advice and other disruptive forces.

To keep pace with the trends, we have consistently added new technology and tools to cover and cater to a much broader investable universe. This has the dual benefit of enriching our solutions and enabling our colleagues to be truly global.

In practice, we are integrating AI and machine learning into our research models to access, collect and analyse much more market data than ever before, and give it more of a ‘personal’ feel in the way we interpret and share it with clients.

For example, in late 2018 we adopted AI tools as part of our quant ratings (Morningstar Quantitative Rating TM). This is already showing its value via a significantly increased fund coverage we are now able to review and make available to clients.

Ready for more research and data

This ability for investors, advisers and product providers of all types to use more digital tools to make more informed decisions will be a critical success factor, especially over the long term.

Given that we have observed almost a doubling in the volume of data we handle every two years, quality and usability are key for everyone.

For example, we have already seen some investment behaviours change towards a sharper focus on creating portfolios and strategies to deliver on different outcomes. This type of investing with purpose can only be done effectively with more relevant information and a better understanding of what it means.

Inevitably, different market players are adopting new ways of curating and interpreting financial data. As a result, some of our initiatives have included expanding our Asian equity research coverage and the use of historical stock tick data.

More broadly, we think that the combination of our focus on transparency, due diligence, digitalisation, research and data, and additional human capital, will further reinforce our efforts to create relevant and timely solutions for clients. We hope this will help investors meet their financial goals as well as support financial advisers and institutions in 2019 and beyond.

We are delighted also to be recognised for our efforts to evolve our independent research capabilities via fresh, constructive solutions. The recent Asian Private Banker award for "Best Service Provider - Fund Research" reflects key initiatives: enabling investors to assess the ESG commitment of companies in a portfolio; giving fund distributors more clarity on investment product suitability; and delivering extensive data to cover more than 4,000 managed investments across all types of strategies.

I wish you all a prosperous year ahead, and hope you embrace this opportunity to plan for the longer term.