From Morningstar:

Navigating through the massive fund universe can be challenging. Between January and November of 2023, Morningstar’s Medalist Rating covered over 135,000 funds and 400,000 share classes. To respond to the increasing funds, data, and investor needs, investors need enhanced financial due diligence and manager research.

Financial due diligence involves the process of investigation and analysis before capital allocation. Investors use these checks to assess potential risk, opportunities, and ESG considerations.

Due diligence checks are crucial for investment and compliance, such as the SFDR in the EU. These checks can identify potential risks and mitigate them, avoiding significant losses.

By conducting due diligence, financial advisers fulfill their fiduciary responsibility to their clients by identifying potentially damaging funds.

Investors seek to address climate change, so due diligence is crucial to align portfolios and investment philosophies and monitor for greenwashing.

Effective manager research is key in the due diligence process. Managers need access to high-quality data and need to disclose climate-related risks in line with TCFD recommendations.

A good due diligence process ends with comprehensive reporting, pulling together all researched components, risks, opportunities, and ESG factors to ensure investors can make informed decisions.

Morningstar offers its Guide to Manager Research to help relieve the stress on advisers and investors by providing the latest insights and methodologies, including their proprietary ratings system.



Read more: Due Diligence is the Bedrock of a Solid Investment…