12 August 2009
Mortgage Fund Returns
In previous Investment News we have discussed the importance of keeping to investment fundamentals. Risk versus Return is another important consideration when choosing where to invest your money.
There are four (4) main investment asset classes: Cash, Fixed Interest, Property,
and Equities - Australian & International. Each has a risk versus return scale with Cash considered the lowest risk and therefore offering a modest return on your investment and
Equities regarded as the highest risk in the group, but with the potential to provide a much higher return.
Mortgage funds fit into the Fixed Interest sector of the market. Therefore across the four main asset classes, mortgage funds are generally considered to
have a low to medium risk profile.
Linked to risk is also the scope for volatility and this should also be taken into consideration.
The graph below shows the performance of the La Trobe Australian Mortgage Fund against the downturn periods of the Australian stock market over a 10 year period. The graph depicts a positive return from the La Trobe Australian Mortgage Fund at the same periods when the Australian stock market was experiencing negative returns. The steady positive return is the nature of the Fixed Interest asset class where the La Trobe Australian Mortgage Fund fits. When the stock exchange is positive, the Fixed Interest asset class may not provide returns as high as the stock market, so therefore volatility in the fixed interest sector is usually minimal in comparison.
Click image to enlarge
An article in the Australian Financial Review (October 2008) headed, "Cash, property shine as shares crash and burn" suggested that investments in cash or property over the last 10 years had come close to or even potentially outperformed the return from equities over the same period.
The volatility in the share market that we have seen in recent times has eroded many of the gains made in equity investments prior to the 'global financial crisis' where the market had previously performed strongly. This has sapped investor confidence. With
the fixed interest sector returning similar or higher returns why should investors tolerate the extreme volatility of the share market without the appropriate returns for such risk?
The La Trobe Australian Mortgage Fund, however, has recorded a positive average return of 10.18%1p.a. over the four investment options between November 2008 and July 2009 when, for the same period, the Australian stock market experienced a downturn of -24.4%p.a. (see graph above). That is why mortgage investments, properly managed, can be a very strong defensive asset allocation for investors.
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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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