Mortgage funds on shaky ground
Days after boutique research house Zenith released an assessment critical of the mortgage fund industry, another report has concluded that mortgage funds will find it increasingly difficult to achieve outperformance in the current economic climate.
The latest Standard & Poor’s (S&P) mortgage sector report assessed the merits of 34 funds that fell into two sub-categories, conservative and hybrid/multi-sector mortgage funds. Both sub-categories invest in first-registered mortgage assets using residential and commercial properties as security with less than 30 per cent of the portfolio allocated to construction. Both types of funds have a maximum loan to valuation ratio of 75 per cent, but hybrid/multi-sector funds strategically allocate between 50 and 30 per cent to non-mortgage-backed, fixed interest assets and possess a variable unit price.
The general trend that emerged from the review process was a downshift in rating quality.
Of the 34 funds looked at only two received a higher rating than last year, with five funds having their awarded assessment lowered. Overall, nine funds achieved a five star rating including those from Australian Unity, AXA, and Perpetual.
S&P believes a major factor contributing to the difficulty for the sector to achieve better than benchmark returns is the banks’ aggressive attitude towards lending money for commercial property in the current lower interest rate environment. This situation has made it tough for mortgage funds to originate loans and has led to many funds suffering from high liquidity levels.
The ratings house found on the whole that fees in the sector had not changed significantly but noted that new comers JF Aqua were offering a performance-based fee structure while the Mariner Mortgage Trust had introduced a split fee arrangement.
S&P’s weakened conviction in the sector follows the view of boutique research house Zenith, reported earlier by Money Management, who also found the sector had a diminishing scope to deliver excess returns.
Recommended for you
BT is to launch a new low-cost “Focus” investment menu for its Panorama platform this October, in partnership with Vanguard, seeking to compete with industry superannuation funds.
Net gains of financial advisers have already doubled since the start of FY25, according to this week’s Padua Wealth Data, with momentum gathering pace far faster than the previous financial year.
National advice firm MiQ Private Wealth has appointed a new chief executive to lead the business through a “transformative era” after penning a partnership deal with AZ NGA earlier this month.
WT Financial’s managing director, Keith Cullen, believes the firm’s Hubco model with Merchant Wealth Partners will be a “repeatable growth model” for the business as it scales its adviser numbers.
