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Money flooding into mortgage funds

The managed funds which get the most public attention at the moment are hedge funds, share funds and it could be argued United Kingdom based Open Ended Investment Companies (OEICs).

Tuesday, April 9th 2002, 11:13AM

The managed funds which get the most public attention at the moment are hedge funds, share funds and it could be argued United Kingdom based Open Ended Investment Companies (OEICs).

However, the funds which get the most money are mortgage backed funds.

According to data from managed fund research house FundSource the funds flow into this sector has accounted for more than 100% of net funds flow in the past two quarters.

It says total net industry funds flow in the three months to December 31 was $116.94 million, however $154.2 million (132%) went into mortgage funds. A similar picture emerges in the previous quarter where mortgage funds accounted for 165% of funds flows.

Another of the interesting statistics is that the flows have been dominated by bank offered funds, as opposed to those from other organisations.

For instance WestpacTrust and ASB Bank have been getting major inflows, while others like Royal & SunAlliance and AXA have been seeing outflows or have remained static.

While all the public attention is on the so-called sexy fund groups, the real interest is in mortgage funds. The reasons behind that are probably that they are seen as a 'safe haven' in times of uncertainty, plus they have been marketed aggressively by some of the organisations.

This raises the question of how sticky in the money in mortgage funds? There is no hard and fast information in this area because managers don't disclose this data.

In the past many mortgage funds had lock-in periods, but these have been phased out.

There is some speculation within the industry that although some managers have been successful at getting money to switch from term deposits into mortgage funds, they are having difficulty keeping it there, simply because the returns for people on low margin tax rates aren't spectacular.

Because a unit trust is being taxed at 33% it may be disadvantageous for people on lower marginal tax rates to use such products. However, investors in mortgage funds that are packaged up as group investment funds (gif), as opposed to unit trusts are taxed at their own marginal tax rate.

ASB Bank chief manager investment services, Roger Perry says the unit trusts aren't tax disadvantaged because investors get imputation credits which they can use in their annual tax return.

However, he acknowledges that this system is administratively cumbersome for investors.

Perry says ASB's mortgage fund has a turnover rate which is "much, much higher" than growth funds, but he isn't prepared to publicly name a figure.

Part of the reason for this turnover is that people park large sums of money, such as proceeds from the sale of a property, into the fund. With retired investors ASB encourages them to put enough money to cover three year's living expenses into the fund, and any other money into a growth fund. These investors then regularly draw down living expenses from the mortgage trust.

ASB a small upfront fee on the fund to dissuade people from 'churning' money for cash needs.

Perry says ASB Bank has considered establishing a gif-based mortgage fund but concluded there "was not a lot of pressure" on the bank to do so.

A new trend that is developing in the industry is that mortgage funds are starting to replace contributory mortgages. Money Managers has an Australian based series of mortgage funds which has attracted large volumes of money and Wellington-based group Lombard recently closed its contributory mortgage business and launched a mortgage fund.

« Mortgage funds to suit all investor profilesThink portfolio - not returns »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 ▼6.79 ▼6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 ▼7.29 ▼7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 ▼7.39 ▼7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 ▼6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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