Managers Take Different Approaches To Address Mortgage Fund Liquidity With Mixed Outcomes, says S&P
Standard & Poor’s Fund Services’ rated nine mortgage fund products as part of its Australian Fixed Interest -Mortgages sector review. The funds included six conventional mortgage funds, two hybrid funds, and one high-yield mortgage fund in the rated peer group, released today. More than half the fund ratings remained stable at three stars, but there were four rating actions, three of which were influenced by fund structural changes associated with fund liquidity management.
We upgraded two funds, the Latrobe Australian Mortgage Fund-Pooled Mortgage Option to four stars and the Australian Unity Mortgage Income Trust to three stars. We removed from ‘On Hold’ and assigned a three-star rating to the Challenger Howard Mortgage fund.
We only rate one fund as two stars, the OnePath OA IP-OnePath Mortgage Tr No. 2 fund, which OnePath Funds Management has decided to compulsorily return capital to investors over the next three to five years.
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S&P Fund Services analyst Peter Ward said: “We have not seen a uniform approach among mortgage fund managers or consistent timing in resolving liquidity issues. We consider this to be a reflection of the different underlying investor base, underlying investments, and different managers’ mortgage fund sector outlook.”
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“Three funds, managed by Australian Unity, Challenger, and OnePath have changed their redemption mechanisms. Each solution has provided improved certainty, but outcomes differ. The changes have contributed to our decisions to upgrade the Australian Unity fund to three stars from two stars and to resolve the long-standing ‘On Hold’ ratings on the Challenger and OnePath funds,” added Mr. Ward.
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Key areas of focus during this review included fund managers’ product strategies, investment team continuity, liquidity and redemption provisions, lending competition and margins, portfolio credit quality/arrears and defaults, and fees.
Click for a full list of funds rated in the S & P Australian Fixed Interest – Mortgages Peer Groups
