Mortgage funds fail to excite investors
MORTGAGE funds are struggling to gain significant traction against other funds management products in the market, according to a report reviewing the relative merits of the mortgage fund sector.
The review, conducted by Managed InvestmentAssessments (MIA) in conjunction with van Eyk, found mortgage funds were largely uncompetitive as they were only able to provide cash-like returns while incorporating a higher level of risk than other cash-like products.
“One of the key issues facing the mortgage fund sector is their current level of returns. They are largely uncompetitive as many of the products offer a cash-type return, but with an inherent layer of risk,” MIA director Kate Gymer said.
Mortgage fund returns have also been hampered by the current competitive nature of the property investment financing sector.
“The lack of quality loans following 13 years of almost uninterrupted growth in non-residential property values has also put pressure on margins and hence returns,” Gymer explained.
The review examined the qualities of seven ‘vanilla’ type mortgage funds. These funds typically invest in property mortgages and cash, and attempt to neutralise the risk of mortgage payment default through holding a range of mortgage investments across many borrowers and properties.
They aim to achieve a return of up to 8 per cent per annum and secure the loans they issue with existing industrial, commercial, retail and residential properties rather than construction sites.
The study is the first to be released since MIA formed a strategic alliance with research house van Eyk.
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