Credit where it’s due for AXA

AXA has been named winner of this year’s Money Management Fund Manager of the Year mortgage funds category.

According to Elizabeth Foley, head of investments at AXA, a long-term, experienced mortgage team has been one key to its consistent success.

“We also have a consistent credit policy. We have had only one bad mortgage in the past few years and that was due to fraud which nobody could detect,” she says.

“That is why people get a lot of comfort from our mortgage fund.”

The AXA fund sources only commercial mortgages, which Foley admits are getting harder to find.

“But this is where an experienced investment team with good contacts is the key to getting good-quality mortgages,” she says.

“And we haven’t dropped our credit policy either.”

AXA also uses a small proportion of the fund, between 20 and 30 per cent, for securitised Australian mortgages managed by Alliance Capital.

“That gives us a consistently invested component that can be achieved without dropping our credit policy,” Foley says.

“The experience of the Alliance team is consistent with our own investment team, which harks back to the days of National Mutual, so we have a lot of experience managing credit.”

Assirt analyst Greg Barr says sourcing a good supply of quality mortgages is one of the big issues facing Australian mortgage fund managers.

“A lot of mortgage managers are running up large cash reserves in their funds as they are unable to source enough mortgages,” he says.

“Some managers, however, are looking to more actively manage the cash portion of their fund.”

Barr says the banks are re-entering the mortgage market and are pricing commercial loans, the staple diet of most mortgage managers, competitively.

Finalist in this award category, Colonial First State, has always been able to access a good supply of investments, according to head of credit funds Tony Fitzgerald.

“We have just 20 million people and the banks are active again, which has limited the supply of good-quality mortgages,” he says.

“However, historically we have been able to access a good supply of mortgages.”

Another key to running a successful mortgage fund is keeping the cash component low and avoiding taking any mortgages to meet investment benchmarks.

Fitzgerald says Colonial has kept 70 per cent of the fund invested in mortgages, but since September last year it has invested the remaining funds in yield-bearing products.

“It added spare capacity to invest in other loan type products, both globally and domestically and that has boosted returns,” he says.

The fund has a Moody’s rating of A, which provides a wider opportunity for attracting quality mortgage base securities.

Challenger has also been named a finalist in the Money Management Fund Manager of the Year mortgage funds category.

Deputy chief executive Rob Adams says the strength of its Howard Mortgage Trust is due to the experience of the investment team.

“We have a team with an amazing depth of experience that brings benefits to the investors,” he says.

The Challenger mortgage trust has a mixture of commercial, retail and residential mortgages.

Adams says scale helps when sourcing good-quality mortgages and the investment team again plays a key role.

“The experience of the team and their business relationships attracts mortgages,” he says. “That can’t be replicated and there is always the danger of poaching, but we have incentives to retain the team.”

— John Wilkinson