In the ever-evolving landscape of wealth management, Morningstar's Nicolas Gisbert offers a compelling perspective on how fund selection is being transformed. Gisbert's insights, shared at the Hubbis Malaysia Wealth Management Forum 2026, shed light on the critical principles and processes that wealth managers must embrace to navigate the complexities of the modern investment world. His presentation, titled 'Smarter Fund Selection and Monitoring in a Changing Investment Landscape', emphasizes the need for a more disciplined, transparent, and fundamentally driven approach to fund selection, particularly in the face of expanding investment choices and evolving client preferences.
The Changing Investment Landscape
Gisbert begins by highlighting three forces that are reshaping the investment landscape: expanding investment choice, the data and technology revolution, and the trend towards personalization. The first force, expanding investment choice, has led to a proliferation of products, from mutual funds to ETFs, private markets, and alternatives. This diversity, while offering more opportunities, also introduces complexity, making it crucial for wealth managers to have a clear and forward-looking framework for evaluating funds.
The second force, the data and technology revolution, is particularly fascinating. Gisbert notes that AI is already transforming how data is collected, cleaned, analyzed, and consumed. For Morningstar, this presents both internal productivity opportunities and external client-facing opportunities, especially when AI is anchored to verified research and structured data. The third force, personalization, is evident in the growing importance of client preferences around exclusions, ESG, Shariah compliance, and other investment constraints. AI is expected to make customized portfolios more scalable over time.
Morningstar's Expanding Research Universe
Morningstar's data, Gisbert argues, forms part of the global language of investing. The firm covers a wide range of investment types and market participants, including managed investments, public and private companies, ESG-rated securities, DBRS credit-rated securities, ETFs, model portfolios, private market data, and retirement solutions. This breadth is crucial because fund selection no longer happens within a narrow mutual fund universe. Wealth managers and advisers must assess products across public and private markets, active and passive strategies, liquid and semi-liquid vehicles, and conventional and sustainability-oriented mandates.
A Five-Step Fund Selection Process
Gisbert outlines a five-step fund selection process: identification, quantitative screening, qualitative screening, product and operational due diligence, and portfolio integration and monitoring. The first step, identification, involves defining the relevant universe by asset class, sector, region, domicile, category, and other criteria. This is where the selection process begins, as a fund can only be judged properly against an appropriate peer group and investment objective.
The second step, quantitative screening, typically involves building a long list and applying scorecards based on measurable criteria. Performance may be part of this process, but Gisbert warns against relying too heavily on it. Alternative assessment methods can include multi-factor analysis, attribution, risk-adjusted return metrics, active share, alpha consistency, peer group comparisons, qualitative factors, and fees. Each gives a different lens on whether a fund is genuinely adding value or simply benefiting from market conditions.
The third step, qualitative screening, is where Morningstar's analyst-led research becomes central. Analysts assess whether the fund has the people, process, and parent structure required to support future performance. The fourth step, product and operational due diligence, involves understanding the manager, the investment process, the operational infrastructure, the risk controls, and the wider interaction points around the fund. The fifth step, portfolio integration and monitoring, requires wealth managers to understand how the fund fits within the client portfolio, how it affects diversification, and whether it aligns with the client's risk profile.
Looking Beyond Past Performance
Gisbert emphasizes that past performance should not be the dominant basis for fund selection. He suggests looking at risk-adjusted returns, consistency of alpha generation, peer comparisons, fees, active share, and qualitative factors. Active share can be particularly useful in determining whether an active manager is genuinely taking differentiated positions or closely tracking a benchmark while charging active fees. Fees are also highlighted as a key determinant of outcomes, with fee pressure intensifying across asset management.
The Morningstar Medalist Rating Framework
Gisbert explains Morningstar's Medalist Rating, the qualitative assessment used to evaluate funds on a forward-looking basis. The framework is built around three pillars: People, Process, and Parent. The People pillar assesses the quality, experience, depth, continuity, and alignment of the investment team. The Process pillar evaluates security selection, idea generation, valuation discipline, portfolio construction, risk management, and capacity. The Parent pillar looks at the asset management firm itself, including ownership, financial strength, organizational stability, culture, stewardship, and regulatory or compliance standards.
Together, these pillars support Morningstar's ratings: Gold, Silver, Bronze, Neutral, and Negative. A medal rating indicates Morningstar's view that a strategy has positive alpha potential, while Neutral or Negative ratings indicate lower conviction. Gisbert clarifies that Gold represents the top 15% of positive alpha potential, Silver the next 35%, and Bronze the remaining 50% of positive alpha potential.
Due Diligence and Portfolio Fit
Gisbert emphasizes that fund selection should not stop once a shortlist has been created. Due diligence remains essential, as wealth managers must understand the manager's interaction points and assess whether the fund is supported by a coherent operating model and whether there are risks that may not show up in a performance screen. Portfolio fit is equally important, as a selected fund must make sense within the client's wider asset allocation. Risk budgeting, portfolio look-through analysis, and correlation assessment are key tools in this process.
Common Pitfalls in Fund Selection
Gisbert identifies several recurring mistakes in fund selection, including chasing performance, ignoring fees, poor diversification, neglecting risk assessment, and overlooking fund manager changes. These pitfalls reinforce the need for a repeatable framework rather than a selection process driven by recent returns or manager marketing.
AI, Data, and the Future of Research Consumption
Gisbert concludes by discussing Morningstar's position in the AI revolution. He argues that Morningstar's advantage lies in the combination of trusted data, accumulated research, and analyst-reviewed content built over more than 40 years. AI becomes more useful when grounded in high-quality source material rather than open-ended information retrieval. Morningstar has developed an MCP server to connect its universe, database, and research with AI tools, allowing users to ask questions within the research environment and receive answers grounded in verified data.
A More Disciplined Standard for Fund Selection
In his conclusion, Gisbert emphasizes that fund selection is becoming more demanding. The investment universe is broader, client preferences are more specific, and technology is changing how research is delivered. However, the basic requirements remain unchanged: wealth managers must understand the market, know the client, and know the product. For wealth managers in Malaysia, the message is practical. A smarter fund selection process should begin with a defined universe, apply meaningful quantitative filters, incorporate qualitative research, complete proper due diligence, and assess how each fund fits within the client's broader portfolio.
It should also remain active after selection, with monitoring performance, risk, costs, portfolio role, and manager changes essential to ensuring that a fund continues to serve the client's objectives. Gisbert's message is clear: better fund selection is about combining transparency, independent research, long-term thinking, data quality, and disciplined monitoring into one coherent process. Ultimately, it's about improving investor outcomes, which requires more than just looking at what performed well last year. It requires understanding what is inside the fund, why it belongs in the portfolio, and whether it continues to do the job.
