4th June 2008
What is a mortgage fund?
As the name suggests, mortgage funds take investors' money and use it to make mortgage loans. Investors then receive the interest payments on those mortgages, after the investment manager deducts its fees and expenses. These mortgages can be for retail, commercial, industrial or residential properties.
Why have a mortgage fund in your portfolio?
Firstly mortgage funds can provide investors with superior investment returns to cash management trusts, and an extra level of diversification. Given that mortgage funds are not closely correlated with returns from other asset classes, adding a mortgage fund to your portfolio could smooth the volatility of your total investment returns.
Where does a mortgage fund fit into your investment portfolio?
Lending money in return for interest is a form of investing nearly everyone is familiar with. You do it every time you put money into a deposit account with your bank, building society or credit union.
However, the financial world has a host of products you can invest your money in, with the same common fundamental features. They promise to:
- pay you interest, and
- pay back what you lend them within a set period of time.
Generally you'll earn a higher rate of interest if you lend your money for a longer period of time, or if there is more risk involved in the borrower being able to repay your loan.
Direct or indirect lending?
There are 2 main ways you can invest your money for interest:
- Direct lending (fixed interest products) - which include putting your money into interest earning deposit accounts with banks, building societies and credit unions and investing in bank bills, Government and corporate bonds.
- Indirect lending - through managed funds such as cash management trusts, bond trusts, mortgage funds and other managed funds that may invest in a wide range of loans. Investing indirectly through managed funds helps spread risk across a larger number of borrowers.
Where does a mortgage fund investment fit?
Here are some of the most common reasons why people prefer to invest in lower risk interest bearing products:
- Reduce risk in your investment portfolio. Companies in which you own shares may cut or suspend dividends, or you may have trouble letting your investment property, so if you depend on your investments for all your income (retirees for example), it might be reassuring to know that you will still get income from your investment in managed funds or interest on bank accounts or government bonds. Superannuation funds and investment managers may use mortgages and bonds to reduce their risk of losing money from falling share or property markets.
- Park your money for a short time. If you have just sold your house and are still looking for another one, you might invest in a term deposit or a cash management account to park the money till you need it.
- Hold money that you cannot afford to lose. For example, money to cover emergencies, or needs you expect to crop up within a couple of years whether it's school fees, an expensive trip or retirement living expenses.
- Save the money for a large expenditure you're planning in 2-3 years time. For example, a trip overseas, deposit on a car or house.
In general, investing for income in this way can offer you a safe way to preserve wealth while earning income.
La Trobe's Mortgage Fund
La Trobe's Mortgage Fund offers you four options to tailor your investments to meet your income needs while satisfying your own appetite for risk.
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Head of Funds Management
t +61 3 8610 2811
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.
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