KEY POINTS:
Some investors have been surprised to see Guardian Trust's CashPlus fund had as much as 35 per cent invested in mortgage securities.
Guardian announced last week it would split out the cash portion of the $160 million fund so it can meet the requirements to be covered under
the Government's Deposit Guarantee scheme.
The $52 million invested in mortgage securities, which aren't covered under the scheme, will be put into a separate fund which is capital-guaranteed by Guardian Trust.
It will then try to sell these securities but unless the mortgages are of a particularly high quality, it could end up sitting in a frozen wasteland like many of the other mortgage trusts which have had to suspend withdrawals in the last six months.
Financial Planner Murray Weatherston says it's not unusual to find mortgage securities in a cash fund.
Most of the banks run large cash funds and generally they appear to be solely in cash deposits.
But the non-banks appear much more likely to have mortgage securities in their funds.
Perpetual Trust's cash fund has 30 per cent in mortgage assets as does AXA. Perpetual Trust said yesterday it would not split its cash fund at this stage.
Public Trust also invests 16 per cent of its fund in mortgage-backed securities.
So are we likely to see more splits in the sector? Weatherston thinks so.
"I suspect anyone with a cash fund will be looking very carefully at the composition and either selling or splitting off their mortgage assets."
He says it's another unintended consequence of the guarantee scheme.
The situation is a reminder to investors to read through the investment statements of any new product they might be investing to see what the trust deed allows the fund manager to invest in.
Just because it's called a cash fund doesn't mean it's all invested in cash.
KIWISAVER LINKS
The split-up of the Guardian Cashplus Fund is also expected to have a flow-on affect to Asteron's KiwiSaver funds.
Guardian Trust, Asteron and Tyndall Investment Management are all owned by Australian firm Suncorp Metway and unsurprisingly there are links between the businesses.
Latest figures for Asteron's Conservative KiwiSaver fund show it has 17.4 per cent invested in the Guardian CashPlus fund, its Balanced fund has 6.2 per cent and its Balanced Growth fund has 6.4 per cent.
Asteron also has a Capital Fund which is fully invested in the Guardian vehicle.
But a spokesperson for Asteron said it would be business as usual for its KiwiSaver funds which would not be subject to the 35-day suspension which has been placed on investors in the Guardian Fund.
This is because new money would be directed into a wholesale call account with one of the major banks and then credited to members' accounts in the usual way.
"In respect of any withdrawals, which are limited due to the nature of KiwiSaver as a long-term retirement savings vehicle, the manager will provide cash from its own resources to ensure that these are paid out. Any cash provided will be without interest to the manager in the suspension period."
Existing money in Guardian fund would continue to attract returns based on the assets it holds.
Continuing contributions during the period of suspension as they are received will go into a wholesale call account with one of the major banks and will attract cash rates of return.
BONDS BONANZA
Funds Focus has noticed a raft of new bond offerings coming up for retail investors.
State-owned enterprise Genesis Energy said it was considering a bond offer for retail investors "if market conditions allow".
While TrustPower also announced it was considering an offer of unsecured subordinated bonds, worth up to $100 million, with $50 million reserved until late this month for holders of a bond issue maturing in mid-December. Last week Auckland International Airport's $130 million retail bond offer closed oversubscribed.
Forsyth Barr fixed interest specialist Brent Stephen says the number of bond issues comes and goes a bit but because recent commercial paper issues have proven a "little bit sticky" companies are turning to retail investors to raise cash.
"With a number of these companies there has been some difficulty accessing the commercial paper market primarily because of the uncertainty of institutions."
Stephen said those institutions or fund managers were feeling anxious because managed funds in general could not apply for the Government's deposit guarantee scheme.
In particular, those who are mainly retail fund managers are worried there will be a flight to safety out of their funds and into Government guaranteed products.
But it's good news for investors who can use the new offers to diversify their portfolios.
Previously most bond issues to retail investors have come from the banks.
For companies it is also a relatively cheap way of raising cash rather than going off-shore for funds - which has become a lot more expensive than it used to be, given the credit crisis.
It has also become tougher to raise money through banks as they are tightening up on lending.
LOCAL COUNCIL BONDS
Local councils are even joining the rush. yesterday Tauranga City became the first local authority to offers bonds.
Its five-year, $50 million bond is offering 7.05 per cent per annum and $30 million has already been snapped up.
Stephen said the Tauranga offer would give other local authorities an idea about how much it costs to raise money from the public and he expected others to follow.
"It's very appealing for them - people get that buy-in feeling," he said.
Local authorities also have very strong credit ratings.
If a ratepayer does not pay rates, councils have the ability to take the property to a mortgagee sale and even if a bank brings on a mortgagee sale the council has first dibs on the sale profits to pay overdue rates.
KIWISAVER CHANGES
With National to lead the Government, investors and employers face yet more changes to come with KiwiSaver.
The proposals include dropping the minimum contribution rate to 2 per cent and capping the compulsory employer contribution at 2 per cent.
Under Labour the minimum employee contribution was 4 per cent although employees could start at 2 per cent if their employer also agreed to contribute 2 per cent.
The change is expected to make it easier for more people to join. But at the same time the lower minimum investment level and compulsory employer contributions will mean investors save less.
Employers who decided to start contributing at the 4 per cent rate will now have to decide whether they will drop it down to the 2 per cent level or keep it at the same rate.
This is likely to create inequality issues particularly for some companies where only some of the staff are on the higher rate.
National have also said they would repeal the law change Labour introduced in September making it illegal for employers to pay those in KiwiSaver less than those who do not join it. Key has promised this won't allow employers to deduct the existing pay of staff to cover KiwiSaver but future pay rises are still likely to come under pressure from KiwiSaver contributions. This is because under National's KiwiSaver policy, from April next year employers will not receive any tax rebate for their contributions.
The changes are expected to prove more costly for employers, many of whom have already spent thousands on getting the right systems in place and getting advice on how to deal with the current changes.
KEEPING IT IN THE FAMILY
Trade Me founder Sam Morgan has been appointed to the board of his dad's company Gareth Morgan Investments and Gareth Morgan Kiwisaver. Sam Morgan has invested $250 million in the company. Gareth Morgan is chairman of the board.
