Mr Medcraft, whose extended term as ASIC chairman will end in November 2017, launched a fearsome attack against hybrid securities in the Fairfax press last week, labelling them as “ridiculous for retail investors”.
In a note responding to the comments, Morningstar senior credit analyst John Likos said their timing was “a little intriguing” given ASIC’s relative silence on the topic in recent months.
The headline of his investor note read: “ASIC chairman lobs a hybrid hand grenade into the room as he closes the door!”
“It’s almost akin to sitting quietly amongst dinner guests all night but letting them know how strongly you object to their views just as you make your way out the door,” Mr Likos said.
Billions of dollars of hybrid supply has been released into the hands of retail investors under Mr Medcraft’s watch, he noted.
“We would have liked them to leverage this and be more vocal from a hybrid education perspective given the strength of their views,” Mr Likos said.
“It could be argued their product intervention powers are limited, but that shouldn’t prevent continued objective dialogue in the investment community.
“Indeed, Medcraft’s comments might be giving us insight into the intended use of new laws aimed at giving ASIC explicit product intervention powers.
“Powers giving ASIC the ability to ban hybrid securities should they be deemed of ‘significant consumer detriment’. [There are] plenty of questions already lining up for the new [ASIC] chairman.”
Morningstar agrees with Mr Medcraft’s comments about the lack of understanding among retail investors about hybrids, he said.
But nevertheless, the outgoing chairman’s decision to throw “such a blanket statement over [hybrids] as an entire asset class is excessive in our view”, Mr Likos said.
Medcraft and Malley…the m&m’s of the financial world.!
..and just like m&m’s,when you have too many of them you will realise they are not good for you and will make you feel sick.
Check Medcraft’s own chequered history in institutional space pre-ASIC, perhaps the answer lies in there for past sins?
Off to join his mate Alex at CPA Advice? Oops, thats right Alex is gone because he was doing an average job as well.
Anonymous – In fairness I do not think it is correct to say that Morningstar published favourable opinions on Agri-investment schemes, don’t believe they covered Agri -MIS
When share got smashed in the GFC the “experts” claimed retail investors shouldn’t own shares.No doubt safer to have all retail client’s holdings in 100% cash then. Medcraft would be happy with that. No capital losses, just a loss of value over time instead.
The Naked Chairman?
I recall conversations while with a previous group whereby some of Morningstar’s senior “experts” voiced strong opinions against Hybrids and insisted they were inappropriate for a portfolio. Though these were the same “experts” who claimed Morningstar didn’t cover/rate particular funds or stocks, let alone have positive views on them…despite the fact that they did cover them and did rate them highly. Of course that’s not even mentioning their highly regarded opinions on agri-investments from years gone by…right up until they all came tumbling down.
The only good thing here is that Medcraft is “out the Door”, Keep pushing the CPA Advice business Greg,no conflict of interest their , you must be in line for a Job .