I’m pleased to share that our fund has delivered another increase in our annualised pre-tax return to 7.44%.

This is a solid result in a decreasing interest rate environment. While we believe we are reaching the peak of our interest rate cycle, we anticipate maintaining a strong premium over bank deposits – our return objective.

The reason for this is twofold. Firstly, when determining our loan pricing, we use our judgment on where we see the market pricing, rather than being linked to a benchmark such as the Official Cash Rate (OCR). A key advantage of not being tied to the OCR or other benchmarks is our ability to maintain higher rates for longer.

Secondly, as previously mentioned, we have been holding cash reserves at the upper end of our target operating range. As the property market slowly recovers, we have the ability to adjust our cash reserves by increasing lending volumes, which will help underpin returns.

You may be aware that we aim to achieve a 1% premium over the main banks’ average 12-month term deposit rate. As 12-month term deposit rates have fallen to around 5.20%, our September return produces a premium of 2.24% before tax. Based on current forecasts, we anticipate maintaining at least this level of premium over the coming quarters, despite a falling interest rate environment.

As always, we remain focused on our driving principle of optimising investor returns while balancing risk and return.

Diversification and Risk Management

We continue to closely manage our loan portfolio, ensuring it is well-diversified. Diversification is crucial in investing, as it helps manage risk by spreading investments across different assets, reducing the impact of any single underperforming investment, and ultimately working to protect and grow your wealth.

Unlike investments with heightened risk due to exposure to smaller loan parcels or specific loans, with FMT you’re investing across a portfolio of over 600 loans secured by close to 1,700 registered first mortgages. This approach enhances return stability and aligns with our commitment to protecting your investments.

Another aspect some investors may not be aware of is our reserve fund. Although our non-performing loans are very low, and we outperform some of New Zealand’s main banks, we continue contributing to the reserve fund as a buffer against potential losses. This helps protect your capital by mitigating the risk of loan defaults affecting the fund’s performance. It’s a key part of our risk management strategy.

Despite the tough economic conditions our reserve fund continues to grow, increasing by around $750,000 per quarter. Our reserve fund underscores our commitment to prudent financial management and long-term stability. This approach strengthens our reputation and fosters trust, making FMT an attractive option for those who value conservative management and consistent returns.

Positive trends in the economy

While the economy remains challenging, falling interest rates have increased activity, and we are seeing positive signs in our lending pipeline. This includes strong lending opportunities and borrowers moving away from bank funding. This shift from the main banks is key to our long-term strategy and future growth.

We are positioning ourselves as a strong alternative to the main banks. Our personal approach is key to this, and our ability to provide flexible solutions for borrowers makes us an attractive option. This shift reflects what we are seeing overseas, and we expect this trend to grow.

Connecting with our investors

Over the last two months, we began our investor meetings in Christchurch and Auckland. It’s been great connecting in person, discussing our fund’s performance, and sharing our outlook. In November, we will host our Waikato and Bay of Plenty meetings. More details are outlined further in this newsletter, and we’re
pleased to announce that economist Tony Alexander will join us at all the meetings.

Looking ahead

As always, we remain committed to providing consistent returns. Your trust in us is something we do not take for granted. Thank you for choosing to invest with us. We trust that the fund’s performance and the latest returns reinforce our commitment to providing you with peace of mind and consistent investment returns.

Paul Bendall

CEO