Long-term supporters of La Trobe Financial will have heard us preach that the performance of the assets in a portfolio drive the investment outcome for investors. Which is why it’s imperative that a manager constructs a pool of highly diversified, quality assets, which will help to protect investors during periods of market volatility.
At La Trobe Financial, we established each of our portfolio investment accounts on the simple premise that a diversified portfolio of highly granular, high-quality mortgage assets performs across the cycle. Portfolios which we have been built with discipline over time and which are purposefully diversified across loan size, borrower type, security location and sector.
Commitment to diversification remains one of La Trobe Financial’s key investment fundamentals, fundamentals which have allowed us to deliver a storied history of performance for our 90,000 investors. And part of the reason why investors have made a strategic allocation across our portfolios from their investible wealth.
But diversification should not begin and end with the manager. Diversification is also relevant for investors and how they construct their investment portfolios. A well-diversified portfolio will commonly have a combination of growth investments and income investments. Including exposures to income investments focussed on providing a steady stream of income can provide predictability and stability to overall portfolio returns and the income generated reinvested or used for current living expenses (important in this high inflation environment).
Credit funds are one of these types of regular income-generating investments and – while Credit Funds have their own risks for investors to consider – they generally offer a highly repeatable and sustainable way to add value to your portfolio with low volatility.
Asset quality matters. It matters because in the constant world of volatility, asset prices fluctuate and can drive results across asset classes. At La Trobe Financial, we focus on selecting the highest quality assets for our portfolios. This allows us to extract value from our chosen asset class of property credit for the benefit of our investors.
Property credit in Australia represents a A$2.5 trillion asset class, and is of a similar size to the ASX and larger than the Australian Bond market. With such a large pool of assets to select from, exposures to property credit can offer a range of benefits to investors as part of their overall investment portfolio, including:
- It is inflation responsive
- It can provide low volatility variable income
- The distributions to investors will typically include alpha outperformance against the wider asset class
- It is relatively intuitive and easy to understand