10th June 2009
Mortgage Fund & Market Update
Much has come to pass in recent times in Australian and global investment markets, generally with disappointing outcomes for investors who had exposures to shares and many debt securities. Over that same time, the La Trobe Australian Mortgage Fund has maintained all of its investment objectives. Performance of the Fund has withstood the market fundamentals that have caused so much difficulty for other investment categories.
During the last year, the La Trobe Australian Mortgage Fund has achieved the following milestones:
- No redemption 'freezes' on any investment options (operating 'business as usual');
- Returns to investors have increasingly outperformed cash, term deposits and bank bill products - presently the mortgage investment return in our Pooled Mortgages Option is 6.95% p.a. variable (7.18% p.a. compounding)1;
- Awarded two Money Magazine "Best of the Best" investment product awards;
- Awarded by Australian Financial Review's Smart Investor magazine 'top ranked Mortgage Fund' and 'top ranked Cash Management Account (amount $10,000)'; and
- Ratings re-issued by multiple ratings agencies2.
We believe our stable performance is testament to our efforts. We presently see ongoing improved opportunities for investment into quality mortgages generating regular investment income for the following five (5) reasons:
1 Mortgage investment outperform cash and term deposits
In recent years mortgage funds have operated in an environment of increasing cash deposit rates and heavy competition for loans from banks and securitisation programs. Both of these have reduced investor return premiums and opportunities. We are pleased to say that the mortgage market has now seen both of these go into sharp reverse.
As a result we believe the La Trobe Fund is entering a new phase of strong reward for investors. Borrower rates in the mortgage fund market are not reducing in line with official cash rates. While official cash rates have now reduced by 4.25% since September 2008, the La Trobe Fund's variable rate has only reduced by up to 2.20%. This results in increasing 'outperformance' by mortgage investments relative to cash and term deposits. These strong investment returns are regenerating increased demand and subscriptions from investors.
2 Stable investment market returns
Clearly we are in a turbulent time in global investment markets. Equity markets, listed property trusts and some other fixed interest categories have now all sustained heavy capital losses since late 2007. La Trobe is proud to demonstrate the positive returns on mortgage investments through this period (typically 7%-10% per annum1). Long term returns on mortgage funds in some cases now exceed returns on general equities.
La Trobe views property values as the key risk to manage. However, new investment proposals are incorporating reduced valuations into conservative loan-value-ratios. With good pricing these new proposals remain sound. Property values are being supported by monetary policy, net immigration and housing undersupply.
3 Understanding recent redemption restrictions
October 2008 saw many Australian mortgage funds announce restrictions on the redemption of capital by investors. This was exclusively in response to the Federal Government bank deposit guarantee. This is commonly viewed as an initiative which was misunderstood by the Government.
Subsequent to the 'media hype' this issue has settled considerably, with income generally ongoing and capital values stable. However these other mortgage funds have generally failed to re-establish adequate investor liquidity, condemning redemption terms previously marketed by these large operators.
The La Trobe Australian Mortgage Fund has not frozen redemptions from any investment option. Our Pooled Mortgages Option and Cash & Mortgages Option have both met investor requirements without issue. Select investors cannot be 'frozen' as Select is a legal investment structure and repayment occurs on discharge of the mortgage.
4 Strength of La Trobe
The downturn has also shown the vulnerability of some investment manager business models that have proliferated in recent years. Increasingly we have seen collapses of managers. We are now also seeing increasing pressures on many managers as a result of reduced funds under management and loan deal flow.
We are pleased to inform you that La Trobe is in a strong position to manage your investments through this present phase and beyond. La Trobe has been operating since 1952 and has built its business to survive cyclical contractions. La Trobe:
- has total funds under management of approximately $1.7 billion, of which the Fund is a part. These larger operations bring substantial benefits for Fund investors;
- has long term mortgage funding from large Australian banks, with facility terms ensuring our success through this period and funding out to 2016; and
- has a strong balance sheet, capitalisation and solvency position.
La Trobe proudly continues its sole business focus of identifying, investing in and managing mortgages in a responsible, long term manner on behalf of investors.
5 Specific opportunities
We also take this opportunity to repeat that our Pooled Mortgages Option is presently paying 6.95% per annum1 variable to investors with monthly distributions. This Option has operated for six years, at all times in line with its stated aims for investor returns and asset quality. We present this Option to ALL investors, particularly those seeking constant mortgage rates of return* on their investments and no 'paper work' associated with Select mortgages.
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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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