In the ever-evolving landscape of wealth management, the art of fund selection is undergoing a profound transformation. At the Hubbis Malaysia Wealth Management Forum 2026, Nicolas Gisbert, Head of Sales, Southeast Asia and Head of Strategic Partnerships, Asia at Morningstar Research, shed light on the critical principles that underpin effective fund selection in this new era. Gisbert's insights were particularly compelling, offering a fresh perspective on how wealth managers can navigate the complexities of the investment universe while maintaining a disciplined, transparent, and fundamentally driven approach.
The Changing Investment Landscape
One of the most striking aspects of the current investment landscape is the sheer breadth of options available to investors. Morningstar's research now encompasses a vast array of investment types, from mutual funds and ETFs to private markets, private capital, alternatives, and direct securities. This expansion has created a more diverse and complex investment environment, where wealth managers must assess products across public and private markets, active and passive strategies, and various liquidity levels. Gisbert emphasized that this broader ecosystem reflects the interconnectedness of investment selection, where fund research, portfolio construction, index design, asset allocation, and client advice all rely on consistent data and comparable analysis.
The Role of Personalization
Another significant trend in the investment landscape is the growing importance of personalization. Client preferences, such as exclusions, ESG considerations, and Shariah compliance, are becoming increasingly influential in fund selection. Gisbert highlighted that AI is likely to play a pivotal role in making customized portfolios more scalable and accessible. In his view, personalization is not just about ESG; it's about recognizing that investors have diverse objectives, constraints, and preferences, and then building portfolios that reflect these unique needs.
The Five-Step Fund Selection Process
Gisbert outlined a five-step fund selection process that wealth managers can follow to ensure a more disciplined and transparent approach. The first step is identification, where wealth managers define the relevant universe by asset class, sector, region, domicile, category, and other criteria. This sets the stage for the selection process, as a fund can only be properly judged against an appropriate peer group and investment objective. The second step is quantitative screening, which typically involves building a long list and applying scorecards based on measurable criteria. However, Gisbert cautioned against relying too heavily on performance, emphasizing the need to consider other indicators that can explain quality and future potential.
The third step is qualitative screening, 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 is product and operational due diligence, which involves understanding the manager, investment process, operational infrastructure, risk controls, and wider interaction points around the fund. The fifth step is portfolio integration and monitoring, where wealth managers need to understand how the fund fits within the client's portfolio, affects diversification, and aligns with the client's risk profile.
Looking Beyond Past Performance
Gisbert emphasized that past performance should not be the dominant basis for fund selection. Instead, wealth managers should consider 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. Gisbert also highlighted the importance of fees, noting that fee pressure is intensifying across asset management, particularly as passive strategies and lower-cost benchmarks challenge incumbents. For end investors, costs matter because they directly reduce net returns.
The Morningstar Medalist Rating Framework
Gisbert explained 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, with Gold representing the top 15% of positive alpha potential, and Neutral or Negative indicating lower conviction.
Due Diligence and Portfolio Fit
Gisbert stressed 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, from the chief investment officer and research analysts to risk, dealing, sales, clients, and external fund relationships. This helps 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. Gisbert highlighted risk budgeting, portfolio look-through analysis, and correlation assessment as key tools for ensuring that the fund aligns with the client's risk profile and objectives.
Common Pitfalls in Fund Selection
Gisbert identified 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. By avoiding these common mistakes, wealth managers can ensure that their fund selection process remains disciplined, transparent, and focused on improving investor outcomes.
AI, Data, and the Future of Research Consumption
Gisbert closed by discussing Morningstar's position in the AI revolution. He emphasized that Morningstar's advantage lies in the combination of trusted data, accumulated research, and analyst-reviewed content built over more than 40 years. In his view, AI becomes more useful when it is grounded in high-quality source material rather than open-ended information retrieval. Morningstar has developed an MCP server, which connects the firm's universe, database, and research with AI tools like Claude, Copilot, and ChatGPT, allowing users to ask questions within the research environment and receive answers grounded in verified data.
A More Disciplined Standard for Fund Selection
In conclusion, Gisbert's message was 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 key takeaway is that a smarter fund selection process should begin with a defined universe, apply meaningful quantitative filters, incorporate qualitative research, complete proper due diligence, and then assess how each fund fits within the client's broader portfolio. It should also remain active after selection, with ongoing monitoring of performance, risk, costs, portfolio role, and manager changes essential to ensuring that the fund continues to serve the client's objectives.
In the words of Gisbert, 'Good fund selection is fundamentally about improving investor outcomes. That requires more than 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.'
