The Fund delivered +0.61% in September, 6.53% over 12 months, as Fund returns continue to lift alongside a higher RBA cash rate as anticipated. At the same time, key risk measures across the Fund are at or below longer-term averages.

The Fund invests across multiple sectors, including strictly first ranking Australian mortgages, which have performed without loss since inception of the Fund seven years ago. Across that seven year period the property market has risen, fallen, risen and now falling once again, with the latest price reductions drawing some media attention and, therefore investor interest. We have summarized our views on this dynamic below and the implications for the Fund.

While we are now seeing property prices decline from their peaks (driven by increasing interest rates), we still expect this portion of the portfolio to perform well and indeed expect to see significant opportunities for further investment as prices settle at a reduced level. The factors that support this view and opportunity are outlined below:

• Our exposure to the sector is via a first mortgage at an average loan to value ratio of 59.12% providing a significant buffer against any current or further reduction in property prices
• We focus on short term exposures (typically around 1 year) so have regular opportunities to reprice and reassess risk as markets change
• Unemployment is the biggest driver historically of mortgage defaults and it is currently at historic lows
• We avoid the highest risk parts of the market such as construction lending
• We diversify our portfolio across different borrowers and geographies to minimise the impact of any particular loan on the performance of the book
• The macro economic environment and outlook (including inflation levels) in Australia is better than most other regions of the world and the RBA and government has considerable capacity to use monetary and fiscal policy to stimulate the economy again if required

In summary, Australian mortgages remain an attractive sector for the Fund today, provided we take the necessary precautions as outlined above. In some regards, less attractive fundamentals can also skew the market in our favour as other lenders, namely banks, pull back, leaving an even larger addressable market with only so much demand to meet it, helping to lift expected returns as we have experienced.