Terlikar was wholly responsible for the operational management of the Fund having taken over sole responsibility in 2012, replacing former Portfolio Manager Joe Aszodi who retired having run the fund for the proceeding 12 years. In the wake of the sudden loss of Terlikar, Aszodi has agreed to return to EQT on a provisional basis to resume his old role until a suitable replacement can be found.

Zenith’s View
Given his senior role, the untimely passing of John Terlikar obviously represents a critical event and the Fund is fortunate that it can call upon the services of Aszodi as a temporary replacement.

Zenith has interviewed Aszodi in the past and has holds very strong conviction in his abilities and that of the broader business in terms of running the Fund as a highly conservative operation.

Given the nature of mortgage portfolio management and the broader EQT business, Zenith does not anticipate any material short term impact to the Fund at this time.

However Aszodi’s return can only be provisional and we note that he will only be working on a part time basis. The calibre of the replacement Portfolio Manager will be paramount to the Fund’s long term success and while Zenith has elected to retain their rating on the Fund in the short term we will maintain a heightened watch on the Fund.

We have informed EQT that we intend to conduct a thorough review of the Fund once a permanent replacement is appointed to determine our ratings outlook going forward. In the meantime, while Zenith retains the Fund’s rating of RECOMMENDED we advise that investors may wish to consider not adding any new client monies to the Fund until the outcome of the succession plan is made clearer.

Zenith extends their sympathies to John’s family, friends and colleagues.

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The Fund is managed by ASX listed Equity Trusties Limited (ASX:EQT) who has in excess of $20 billion dollars in funds under management.

EQT’s process seeks to derive stable returns with predictable quarterly income derived from a diversified pool of real estate mortgages, aiming to outperform the RBA Cash rate on a rolling three-year basis.

Zenith’s View

Zenith sees the Fund as representing a good choice for conservative investors seeking a stable quarterly income stream.

The Fund operates under a highly conservative lending regime, which is somewhat contradicted by the broadly competitive rates at which it lends, which would normally be associated with higher risk lending. EQT’s loan pricing power is based on clients paying a premium for the level of service and relationship management imparted by EQT.

The Fund managed to avoid the issues which have plagued the sector since 2008, liquidity issues and declining credit quality. This is attributed partly to their traditional investor base which has been mainly sourced from existing EQT clients minimising exposure to ‘hot money’ flows seen in the wider marketplace.

The Fund’s performance over the long term has been solid and consistently a first quartile performer in its peer group. While there have been periods where the Fund has lagged in environments where interest rates move upward quickly, this is generally an inherent characteristic of mortgage funds with a weighting to fixed rate mortgages. Given EQT sees itself as a fundamental long-term investor who seeks to look through interest rate cycles, Zenith sees this outcome as an inherent part of the Fund’s makeup and a function of its strategy.

Overall, Zenith regards the Fund as an attractive offering for the conservative investor.

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