House Prices

Drivers of mortgage fund performance

Mortgage funds have proven to be particularly popular over the last few years. Investors have shied away from growth assets in favour of income, largely due to the poor performance of equities. However, there are a number of factors influencing the performance of these funds that many investors may not have considered.

Saturday, March 27th 2004

Why are mortgage funds so popular?

Mortgage funds had net inflows through 2002 and 2003 of over $1bn. In New Zealand, mortgage funds are promoted by both banks and fund managers. Large investor inflows are particularly pleasing to banks for two main reasons. Firstly, the securitisation of debt means that they have less debt on their books, are required to hold less idle cash and this increases earnings. (For more on securitisation and how it works, see the FundSource articles from February 11 and 20.) The other bonus is that many of the investors in these mortgage funds previously held term deposits with the banks. Every time their deposit matured they would look around to see what the other banks were offering, and would often switch if they could get a better deal, meaning the bank had to be very competitive to keep the money invested with them. A fund, however, does not have a maturity date, so in theory at least the banks will find it easier to retain the invested funds. Ironically, such large inflows can work against fund managers.

Mortgage funds are attractive to investors in certain environments as they may achieve higher returns than other income investments, such as fixed interest funds and term deposits. The average annual return for a mortgage fund to the end of January 2004 was 3.53%, compared to 3.03% for a fixed interest fund. And perhaps what many investors like most about mortgage funds is the low volatility of returns relative to equities.

Read More - Opens in a new window
Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.