03 May 2012

Dear Investor,

In our ‘back to basics’ series of Investment News, we have already covered many of the fundamental issues that face investors. We have discussed the importance of saving and investing to build our wealth for the future. We have considered the key issues involved in building an investment portfolio and have reflected on the characteristics of the various asset classes.

In this month’s edition, we round-off our discussion by considering some final key questions that investors frequently ask.

What is a managed fund?

A managed fund (also known as a managed investment scheme, mutual fund or unit trust) is a financial product that permits individuals to invest their money into an investment vehicle (the fund). The ‘fund manager’ then invests this money based on a pre-existing investment strategy.

Managed funds offer two key potential benefits to investors. First, by investing in a managed fund, investors obtain the benefit of the manager’s investment expertise and (often) the manager’s ability to access investment opportunities that are unavailable to individual investors. Secondly, managed funds are an easy and effective way to diversify portfolios. Individual investors may not have a sufficient amount of expertise to construct a properly diversified portfolio. However, when their investment is pooled with that of other investors, diversification becomes feasible.

The precise characteristics of a managed fund depends on its structure and strategy. For example, the La Trobe Australian Mortgage Fund caters for investors who:

  1. want to benefit from the manager’s expertise and the diversification benefits of pooled investment options (the Cash & Mortgages and Pooled Mortgages Options); and

  2. want the ability to control their own investments and select the individual investment in which they will invest (Direct Mortgages and High Yield Options).

To invest in a managed fund, investors need to complete an application form, located in the fund’s product disclosure statement (PDS). A PDS will typically contain general information about the financial organisation behind the fund, known as a responsible entity. It will also often contain general information about the risks of investing, fees and other costs associated with the fund, the number of investment options provided and the risks associated with each option.

Please click on the following link to obtain a copy of the La Trobe Australian Mortgage Fund’s current PDS and application form - PDS.

How to choose a financial adviser?

With so many financial products in the marketplace, the task of making financial investment decisions can be a daunting exercise. Investors often seek advice from experts like accountants, taxation professionals and financial advisers. A financial adviser can provide investors with the big picture view of their financial position and establish a plan that provides long-term direction.

Once an investor has made the decision to seek advice, the next step is to choose an adviser. ASIC produces a handy guide “Getting advice” that provides the following helpful tips to assist with selecting an adviser:

  1. Deal only with a licensed advisory business,

  2. Pick the adviser with the strongest qualification, experience and integrity,

  3. Ask questions until you really understand,

  4. If you feel uneasy, it’s OK to walk away,

  5. Make sure your financial plan suits your needs and personality,

  6. When you get a good plan, stick to it,

  7. Keep all your paperwork.

What are the pros and cons of borrowing funds to invest?

Borrowing money in order to invest in assets, also known as gearing, is an investment technique that multiplies either gains or losses. The two most common forms of gearing are borrowing to invest in a property (mortgage) or shares (margin loan).

‘Margin lending’ refers to the situation where an investor borrows to specifically invest in shares, fixed interest securities or managed funds. The assets purchased with the margin loan funds are used as security for the loan. If the value of these assets drops below a certain threshold the investor will often receive the dreaded margin call to provide further capital (cash or other security) to the lender.

Pros of gearing

  • The ability to further diversify an investment portfolio using borrowed funds. This can increase profits and income substantially if the value of the portfolio rises.

  • The costs of servicing the loan are generally tax deductible.

Cons of gearing

  • Gearing in a falling market can magnify the losses when the value of your investment decreases.

  • Potential exposure to margin calls where you may be required to provide further capital to your lender.

Investing can be a complicated activity, especially if investing directly or using gearing. However, through the use of managed funds and financial advisers the process can be simplified. Investors should take their time when making investment decisions and always remember the often repeated La Trobe Financial adage that ‘getting rich slowly never goes out of fashion’.

30 June and the end of the financial year is rapidly approaching. In next month’s edition we will provide some common tax tips for investors.

Best regards,
Chris Andrews

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Chris Andrews
Head of Funds Management

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

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0408 566 524
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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 145 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. The PDS is available on our website www.latrobefinancial.com.au or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
* 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.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The award and ratings were given to the Pooled Mortgages Option within the La Trobe Australian Mortgage Fund.
The rating is only one factor to be taken into account in deciding to invest.
1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith. Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product (S), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com.au The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
2. Standard and Poor's (4 Stars - Research Rating) "The S&P rating of 4 out of a possible 5 stars indicates that Standard & Poor's has high conviction that the manager will consistently generate risk-adjusted fund returns in excess of its relevant investment objectives and relative to its peers. Ratings are subject to change. To view the latest research information please visit www.standardandpoors.com.au. Ratings issued by Standard & Poor's 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. Research houses receive a fee from La Trobe Financial for rating the product."
3. SQM Research - 4 stars to 4.25 stars - superior, suitable for inclusion on most Approved Product Lists. To view the relevant research information, please visit www.latrobefinancial.com.au This rating will not take into account your, or your clients' objectives, financial situation or needs. It is up to investors to consider whether specific financial products are suitable for your objectives, financial situation or needs. Research houses receive a fee from La Trobe Financial for rating the product.
4. Lipper Leaders Rating Total Return (Score – 5) Lipper Ratings for Total Return reflect funds’ historical return performance relative to peers. The ratings are subject to change every month. The highest 20% of funds in each peer group are named Lipper Leader or a score of 5 for Total Return. Lipper Leader ratings are not intended to predict future results and does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright, All Rights Reserved.