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S&P releases Mortgage Fund sector review

Mon, 11 Jun 2012 21:35:44 +0000

Standard & Poor’s Fund Services has released ratings for funds in the 2012 mortgage fund sector review. All ratings remained stable.

There were three funds reviewed, which included one conventional mortgage fund and two high yield mortgage funds. The Latrobe Australian Mortgage Fund Pooled Mortgage Option has again been rated four stars, the highest rating in the S&P rated mortgage fund peer group.

“The rating outcomes of three stars and above reflects S&P’s conviction in each manager’s investment capability and their ability to manage: investment team continuity, liquidity and redemption provisions, lending competition and margins, portfolio credit quality/arrears and defaults, and fees,” said Peter Ward, analyst at S&P Fund Services.

“The rated funds have continued to deliver on their objectives to provide regular income distributions to their investors and have maintained capital stability in an environment where substitute products remain competitive from a risk and return perspective,” he added.

12 June 2012

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Australian Mortgage Funds Continue To Suffer Redemption Pressure

Mon, 23 May 2011 02:31:06 +0000

Funds in Standard & Poor’s Fund Services’ Australian Fixed Interest – Mortgages rated peer group have all continued to deliver monthly income distributions and capital stability, but most are experiencing redemption pressure and a lack of positive net fund flows, according to the Sector Report published today.

Mortgage fund managers have not had uniform approaches or uniform timing to implementing permanent, more sustainable redemption structures.

“The status of the sector is only slightly more positive than that at the time of our last review. Managers of liquidity constrained funds continue to face significant difficulties in balancing the competing interests of investors. They need to accommodate those who want their capital returned, while also delivering an appropriate return to others who wish to remain invested,” said S&P Fund Services analyst Peter Ward.

Key findings of the report include:

The ability to improve performance is inexorably linked to a fund’s capacity to lend in a less competitive environment than before the GFC, on more conservative terms, and at higher margins. Of the nine funds we rated, five are undertaking new lending. If a fund cannot lend, its ability to re-price its portfolio is significantly restricted. Those funds that have been lending have outperformed to a greater extent than those funds unable to undertake new lending.
Portfolio credit quality has again been patchy. Some funds have seen an improvement in portfolio credit quality, although others have reported deterioration.
This sector review includes six conventional mortgage fund products, two hybrid funds, and one high-yield mortgage fund. In our review, we resolved two ‘On Hold’ ratings, but three managers withdrew their funds from the rating process, resulting in a smaller rated peer group.

The Australian Fixed Interest – Mortgages Sector Report published today covers nine capabilities offered by eight managers. This report, together with reports for all funds rated as part of the review, are available on S&P’s subscriber website www.fundsinsights.com

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Managers Take Different Approaches To Address Mortgage Fund Liquidity With Mixed Outcomes, says S&P

Sat, 14 May 2011 04:46:06 +0000

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

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