Investors seeking defensive assets should not shy away from mortgage funds because of a misplaced fear that they are somehow linked to sub-prime mortgages, financial services group Australian Unity Investments (AUI) has warned.
AUI head of mortgages Roy Prasad said now is the right time for investors to consider conservatively managed, conventional mortgage funds because they can often provide the diversification and lower levels of risk needed in portfolios.
“Conventional, well-managed mortgage funds provide a sensible balance of risk and return that investors need most in periods of market volatility and have an important place in portfolios where investors want fixed income combined with diversity.
“Sub-prime mortgages are a completely different product that is specific to the US.
“In addition, the level of risk in some sub-prime mortgages was particularly high because money was lent to people with poor credit histories who couldn’t afford the repayments on residential properties declining in value,” he said.
Australian mortgage funds follow a strict lending criterion, which significantly reduces risk, according to Prasad.
“Those that lend only on first mortgages, and have geographic as well as property sector diversification, further reduce risk,” he said.
