Weekly Wrap: Winter of discontent continues

On Tuesday, just a week after the $250 million Canterbury Mortgage Trust (CMT) spooked the market with its freeze, the similarly-sized Guardian Mortgage Trust followed suit.

Friday, August 1st 2008, 4:30PM

As with the Canterbury fund, Guardian managing director Sean Carroll, blamed the hold redemption freeze on "liquidity issues" with the fund's cash level dropping below its target of 5%.

Guardian became the fourth mortgage trust to announce such a measure this year in a trend that was kicked off by Tower, which shut down its $242 million fund in April.

Sam Stubbs, head of Tower Asset Management, said the recent events in the mortgage fund sector have confirmed the validity of his decision to close the Tower fund.

Stubbs, who admitted the call on closing the Tower mortgage trust was "a tough one to make" in April, said the fund is about to make its second quarterly payment to unit holders. The latest payout should be in the order of 15-20%, which combined with the earlier payment of 10%, will bring the total capital return to about 30%.

According to Stubbs, a 30% return without selling any underlying mortgages represents a "good outcome" for investors. However, he said Tower has put a tranche of the fund's mortgages on the market with a number of prospective buyers showing interest.

We've seen it all before...but it still hurts
This scary thing about this Blog is that it shows my age! All this turmoil in the investment markets - with finance companies and mortgage trusts - reminds me of a major event that happened back in the early 1990s. [more]

This week FundSource also put the entire mortgage fund universe it monitors on hold citing high redemption rates and liquidity problems.

FundSource also revealed this week the continuing decline of the managed funds sector, with net outflows of about $400 million in the June quarter.
However, the results should be taken with a grain of salt given that two managers – NZ Funds Management and First Mortgage Managers – pulled out of the FundSource survey over the quarter.

According to FundSource, total retail funds under management dropped from almost $19 billion to just under $17 billion over the three months to June 30 – NZ Funds and First Mortgage combined totalled about $1.4 billion.

It wasn't a complete disaster for the sector, though, with KiwiSaver once again playing backstop, contributing $311 million to fund managers over the period.

The FundSource KiwiSaver figures do understate total flows – the NZX-owned research probably covers about 75% of the market by flow.
During the week, the government also revealed KiwiSaver members topped 750,000.

Meanwhile, the Financial Advisers Bill is moving closer to its ultimate form with submissions to the select committee now completed. The select committee report is due in September but is expected to include the recommendation that accredited institutions be created.

While that particular amendment has sparked concern, a spokesperson for Commerce Minister, Lianne Dalziel, said the exemption would only apply to employees of accredited institutions who sell "simple" financial products created by their masters.

Undoubtedly, the definition of what constitutes a 'simple financial product' will come under much scrutiny by the industry over the few weeks left before the draft bill enters Parliament.

This week the Health Funds Association (HFA) also predicted the health insurance market has plateaued. The market grew by just under 1% in the 12 months to June 30 but HFA chief, Roger Styles, said most of that growth occurred early in the period.

Nonetheless, the insurance market is moving with the times. Yesterday, for example, ING revealed it had made the first payout to fund a full-course of the breast cancer drug Herceptin. Pharmac currently funds only a nine-week course of the drug.