Feb 082016

Mortgage Investment Corporations Returns in 2015

The Toronto Stock Exchange lost about 9% last year. But one group of investments that performed well in 2015 were mortgage investment corporations (MIC.) In the beginning of 2015 I held three different MICs. Since I didn’t add any new positions throughout the year it’s easy to calculate my total annual returns from them. Let’s take a look at the results. 🙂

Liquid’s MIC returns in 2015:

  • Antrim Mortgage Fund: +4.5% return (on $10,300 invested)
  • Atrium Mortgage Investment Corp (AI): +8.2% return (on $2,100 invested)
  • Timbercreek Mortgage Investment Corp (TMC): -0.6% return (on $2,600 invested)

Total returns = 461 + 172 + (-16) = $617

Overall Return on investment = $617 ÷ $15,000 = 4.1% return

The chart below shows the unit price of my AI and TMC investments compared to the S&P/TSX index, throughout 2015. It does not include dividends or interest.


MIC Analysis

My total return for holding $15K in MICs last year earned me 4.1%. This rate of return was lower than the historical average of 5% to 8% one would normally expect from a basket of mortgage based investments. I believe a number of negative factors played into this outcome.

  1. Our economy in 2015 was weaker than economists had expected. The price of oil lost around half its value. As a result, the Canadian economy fell into a recession because it’s very dependent on strong oil prices to grow.
  2. Another reason is because the Bank of Canada cut interest rates not once, but twice in 2015. Lower rates are bad for mortgage lenders like MICs because they make less money if borrowers pay less interest on their loans.
  3. Furthermore the annual account fee I paid to my trustee lowered my Antrim Mortgage Fund return by 1.3%.
  4. The last reason is because one of my holdings, Timbercreek (TMC) severely under-performed other MICs. I don’t know if 2015 was just a bad year for the stock or if the drop is due to something more substantial.

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Dec 172015

Federal Funds Rate increased to a range of 0.25% to 0.50%

The Federal Reserve finally increased the interest rate by 0.25% after 7 years of essentially being at 0%. It was the talk of the financial news world yesterday. Is this good or bad? Well, that depends on who you are. 🙂

15-12-us-rate-hike-25-bps federal funds rate

The winners are people who hold the U.S. dollar. For example if you have U.S. investments in $USD, then you are in a good position. Anyone who makes money in U.S. dollars will also get a boost in purchasing power. These lucky folks include Canadian exporters, and other Canadians companies that do business in the U.S. such as TransCanada, which rallied 15% this week. 😀 American based banks also benefit from the rate hike since it gives them an excuse to increase their prime lending rates, which means they can charge consumers more for mortgages and car loans. Not surprisingly bank stocks such as Goldman Sachs and JP Morgan were up over 2% after the news yesterday. 😉 Major international banks such as Switzerland’s Credit Suisse and Britain’s HSBC also liked the news, both gaining over 2.5% at the day’s close. Canadian banks with U.S. exposure such as Royal Bank and TD also saw some gains, but to a lesser extend. As a whole, stock market investors can celebrate. In the past, equities in developed nations have “reacted pretty well to a Fed tightening,” according to Brian Davidson, markets economist at Capital Economics. Savers and conservative investors, many of who are seniors, can also rejoice as their savings accounts, CDs, government bonds, and money market funds should produce more attractive returns, not immediately, but gradually over the next year or so.

The losers of this Federal funds rate hike, on the other hand, are U.S. borrowers, commodities, U.S. real estate owners, and Canadian consumers. According to the Consumer Financial Protection Bureau, more than 94% of general purpose accounts in their credit card database have variable rates, the average being 12% APR. The quarter rate hike by the Fed will make it harder to service those credit card debts for a lot of U.S. consumers starting from their next billing cycle. Interest has such accrual way of accumulating. 😛 The increased value of the U.S. dollar relative to the Canadian loonie will mean Canadians have to pay more to import goods from south of the border. I don’t know about the rest of the country but around my neck of the woods we important most of our fruit and vegetables from the U.S. I’m expecting higher grocery cost in 2016. Prices of commodities such as oil, copper, and other resources will fall because they are valued in $USD, so a stronger greenback means they become more expensive to most buyers around the world.

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