15th August 2007

Dear Investor,

Can you trust mortgage trusts?

Over the past 30 years, mortgage trusts have become an established investment product for people seeking regular monthly incomes.

Today, managers of mortgage trusts handle about $22 billion, virtually all of which comes from small retail investors.

When Perth-based Westpoint got into trouble, it sent a chill up the spine of the thousands of small investors who have placed their money into property development mortgages and now, three more Sydney based development originated funds, Fincorp, Australian Capital Reserve and Bridgecorp have collapsed. Although there is a danger in lumping all mortgage trusts together, it is important to remember some have been established for decades and present no problems.

La Trobe repeatedly stresses the need to differentiate between conservative mortgage trusts and other forms of high-risk investments like debentures and promissory notes offered by development companies.

Even among mortgage trusts, few carry independent ratings or provide a safe investment to the small investors.

The key points to note are:

  • Choose an approved manager with a good track record;
  • Look for a transparent structure with a responsible entity behind it;
  • Ask questions when the return offered is more than 1.5 percent higher that the prevailing cash rate (currently 6.5 per cent);
  • Compare the annual management fee, called the Indirect Cost Ratio (ICR). Fees can range from 0.7 to 1.5 per cent a year for mortgage trusts; and
  • Ensure they are an established mortgage trust investing in registered first mortgages, requiring the borrower to put up equity of 35 to 40 per cent, and not solely a development lender.

Randal Williams, Head of Funds Management at La Trobe says its mortgage fund, which has 3,500 investors, has returned an average of 10.06 per cent a year since inception. The La Trobe Fund had been rated **** four stars out of a possible five stars by Property Independent Research (PIR), and *** three stars out of a possible 5 stars from Standard & Poor’s (S&P)

Some $400 million is invested in mortgages with the balance in cash and fixed interest securities in the La Trobe Fund, making the La Trobe Fund one of the largest in Australia.

The annual management fee is 1.25 per cent of the investment. The minimum investment is $1,000 and there are no entry fees.

Mr. Williams said "We realise retirees chasing higher incomes will be attracted to riskier products, such as investments in construction development funds which offer 3-4 per cent above cash rates. However, it is important investors understand that not all property investing is "safe" and development finance is not for everybody."

When used properly a mortgage trust has the following benefits for investors:

  • increased potential for return at an appropriate level of risk;
  • reduced reliance on market performance for consistent returns; and
  • flexibility resulting in an innovative investment solution which focuses on providing more consistent results to help you.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

* La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
(1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment.
(2) Withdrawal rights are subject to liquidity and may be delayed or suspended.
(3) As at 30/11/10 the La Trobe Australian Mortgage Fund had received a Morningstar RatingTM of 5 stars. The Morningstar Rating is an assessment of a fund's past performance - based on both return and risk - which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2010 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf
(4) 3.75 star rating out of a possible 5 star rating indicates that Adviser Edge believes that La Trobe has performed in line with its peers and exceeded its peers on some fronts.
(5) The Standard and Poors rating of 4 out of 5 stars indicates that S + P has high conviction that La Trobe Financial will consistently generate risk-adjusted fund returns in excess of its relevant investment objectives and relative to its peers.
(6) The award was given to the La Trobe Australian Mortgage Fund, Pooled Mortgages Option.
Research Ratings are subject to change. To view the latest research information please visit www.adviseredge.com.au or www.standardandpoors.com.au. Ratings issued by Adviser Edge Investment Research AFS Licence No. 236783 and Standard & Poors Information Services (Australia) Pty Ltd AFS Licence No. 258896 are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. The ratings are only one factor to be taken into account in deciding to invest. Research Houses receive a fee from La Trobe for rating the product. The Adviser Edge rating is generally a measure of the rated entity's capacity to meet its repayment obligations in all market circumstances.
IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website.