BNZ soups up its mortgage trust
Wednesday, March 21st 2001, 7:08AM
BNZ has revamped its fund in the highly competitive mortgage trust market by changing its fee structure.
The aim of the changes are to improve the fund's performance and move it into the top third of the league table, and to stop people moving to other investments, particularly term deposits.
The mortgage trust sector is highly competitive especially amongst the banks. ASB Bank and WestpacTrust, which are relative newcomers to this area, have been getting huge funds flows into their mortgage funds.
IPAC Securities says the WestpacTrust Home Loan Trust attracted $43 million and $95 million in the December and September quarters respectively, while ASB Bank Residential Mortgage Trust has had funds flow of $60 million in the nine month period to December 31.
Likewise Money Managers launched First Step, a range of three mortgage funds, late last year, and it has been highly successful. It has taken in more than $100 million since launch.
Banks have had significant success when with mortgage trusts in the initial stage because they can effectively sell them to the bank's customer base.
The trend has been that while the fund's flow starts off as a flood it slows, then a retention problem develops and investors switch between mortgage trusts and term deposits.
Part of the reason for this is because customers compare them against bank deposits and often aren't making similar comparisons.
For instance they will compare historical net performance, against gross future performance. That is they will look at the end of year fund performance (which is net) and compare that with what the banks are currently offering for a term in the future (which is gross).
BNZ product manager Grant Hill says the changes to the BNZ fund are to ensure it can deliver of its value proposition, and to better educate people about the product.
He says over the recommended investment time the fund will deliver its stated aim of modest out performance against the term deposits. After management and trustee fees are deducted from the fund will provide outperformance of 0.5% annually.
Other changes include removing the up front fee and replacing it with a 1% withdrawal fee if the money is taken out within three years. Hill says this fee structure is designed to be better aligned with the fund's value proposition.
He says the fee isn't charged to advisers' clients.
Also the fund has changed its name from the Mortgage Income Fund to the Mortgage Investment Fund, recognising that the fund no longer makes distributions.
Because the fund is non-distributive it is highly attractive to investors on tax rates of 33% or higher.
To help improve returns the fund has reduced the amount of cash it holds. At times up to 30% of the $245 million fund was in cash, now the average holding is below 5%.
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