Mortgage funds failing risk/return test: MIA

A growing number of products in the ‘conservative’ mortgage fund sector make it hard for investors to separate quality products from their more speculative counterparts, according to new research by Managed Investment Assessments (MIA).

Only 15 of 50 funds in the ‘conservative’ sector were found to meet the minimum requirements to achieve an ‘approved’ rating under the property investment research consultancy’s research guidelines.

MIA defined the ‘conservative’ sector as funds having exposure to first registered mortgages up to a maximum loan to value ratio of 67 per cent — similar, it says, to the risk profile of many major banks.

“There is no other conclusion you can draw from our survey but that for most funds in the sector there is a mismatch between risk and return,” MIA director Anton Lawrence said.

“The market continues to be characterised by too many funds chasing too few loans of sufficient quality . . . the lack of which remains an issue for the industry and subsequently returns produced.”

On the positive side, this year’s review marks the first time in the past two years that MIA has deemed any sector funds to be of a suitable standard to earn its ‘quality’ rating.

Lawrence said this ratings upgrade to “a number” of funds follows on from several improvements that have been implemented in the sector in the past year.

“There has been significant effort by the industry to educate the investment market on the differentiation between the risk profiles of various funds, particularly after Westpoint,” he said.