18th March 2009
The La Trobe Australian Mortgage Fund -
the four Investment Options
It's been some time since we had a look at the four separate Investment Options that comprise our Mortgage Fund, so we thought that we would provide some information about each option.
In this Investment News, we will give you an overview of the Options, and in next week's edition we will look in more detail at the Select Mortgages Option and the Special Situation Mortgages Option.
Our Mortgage Fund offers four individual Investment Options, each of which has a different risk - return profile.
The Options are:
- Cash & Mortgages
- Pooled Mortgages
- Select Mortgages
- Special Situation Mortgages
The first 2 Options - Cash & Mortgages and Pooled Mortgages - are what are commonly referred to as "pooled" investment options - that is, investors' money is "pooled" together, and invested collectively in a number of mortgages chosen and managed by La Trobe. Investors in these two Options benefit from the diversification that comes with an investment in a range of mortgages with different investment characteristics such as geographical location, sector type, loan maturity time lines and interest rate profiles.
The Cash & Mortgages Option spreads its investments across both cash and mortgages (as its name suggests) and the current balance between the two asset classes is about 50/50. Of the Option's mortgage component, it currently has investments in 125 individual mortgages.
The Pooled Mortgages Option is almost 100% invested in mortgages and it currently has investments in 263 mortgages.
Each of these Investment Options can have an investment in the same mortgage, depending upon the portfolio requirements of each.
The other 2 Options - Select Mortgages and Special Situation Mortgages - are what are commonly referred to as "contributory" investment options, where investors select the mortgage in which they want to invest, on the basis of information provided by La Trobe about the mortgage. One investor may be the sole investor in a selected mortgage, or there may be a number of investors in the mortgage. Investors are likely to enjoy greater returns on their investment in either of these 2 Options, but with a higher exposure to risk as the investment trade-off. These investments will be for a set term after which the investor will revert to the Cash & Mortgages Option until another suitable investment is confirmed. This contrasts with the Pooled Mortgages Option where the investment and related returns continue until the investor redeems. Hence, for example, an investment in the Pooled Mortgages Option may over time yield a higher return than a series of Select investments over the same period (as well as at a lower risk level), because of the time spent invested in the Cash & Mortgages Option between each investment in Select mortgages.
There are different investment terms for each Option:
- Cash & Mortgages - 24 hours3
- Pooled Mortgages - 12 months3
- Select Mortgages - the term of the underlying loan, usually 12-24 months
- Special Situation Mortgages - the term of the underlying loan, usually 12-24 months
The mortgages that form part of each Investment Option all undergo the same rigorous selection and underwriting procedures at La Trobe, and are all managed by La Trobe for the term of the loan.
The investment rates payable to investors for each Investment Option reflect the risks associated with the Option, and there is a gradual increase in both return and risk as the exposure to mortgages increases, and as the diversification enjoyed by investors in the 2 pooled options is replaced by the investment focus on an individual mortgage in the 2 contributory options.
The current investment rates payable for each Option are:
- Cash & Mortgages - 5.50% p.a. variable1
- Pooled Mortgages - 6.95% p.a. variable1
- Select Mortgages - Approx 8.00% to 10.00% p.a.1
- Special Situation Mortgages - Approx 12% p.a. plus1
We will go into more detail about the Select Mortgages Option and the Special Situation Mortgages Option, and how they differ from the Cash & Mortgages Option and the Pooled Mortgages Option in next week's edition of Investment News.
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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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