As market uncertainty continues and equity and fixed income investments generate less predictable returns, investors are increasingly looking to alternative investments as a means of generating compelling returns in their portfolios. Mortgage investment corporations, or MICs as they are commonly known, are a popular investment option because of the many benefits they offer.
Let’s take a look at five reasons MICs continue to be a popular alternative to more conventional fixed income investments for smart investors.
- Overall return potential
Mortgage investment corporations enable investors to invest in a pool of mortgages from which they receive regular income distributions in the form of dividends. MICs have historically produced competitive returns relative to other fixed income investments, often ranging from 6-11%, a return that is difficult to achieve through traditional fixed-income investments such as bonds or GICs. MICs that deliver consistent returns may also have controls in place as their managers seek to maintain a stable portfolio that delivers consistent, compelling returns over time.
- Compounded growth
Most MICs offer a DRIP, or dividend reinvestment program. Instead of receiving distributions in cash, MIC shareholders can opt to have the dividends automatically reinvested in additional MIC shares. This allows investors to benefit from compounding, helping their investment grow faster. By making part of the investment decision-making automatic, investors reap the benefits over the long-term by staying invested and growing the amount of money they have working for them.
- Tax-advantaged investments
MICs can be held in registered accounts such as RRSPs, RRIFs, and TFSAs. While the specific tax benefits vary based on the type of account, MICs being registered account-eligible provide a number of tax planning opportunities for investors, including tax-deferred growth. Taxes on investment earnings in some registered accounts are deferred to the time of withdrawal, often in retirement when the average investor’s income may be lower than during their working years, and as a result taxed in a lower income bracket.
- Diversification
A MIC is a pooled investment and as such, provides investors with access to a diversified portfolio of mortgages, each with their own unique characteristics such as loan-to-value ratio, term, borrower profile, property type and location etc. This gives investors access to a broad range of properties within a single investment. Additionally, with their lower correlation to the equity markets, MICs are particularly popular during times of economic volatility.
- Risk mitigation
MICs can offer effective risk mitigation, provided they are well diversified and expertly managed by a team of professionals who assess each borrower and each property carefully. By allocating investor capital across a diversified pool of mortgages, investment risk is mitigated by spreading it over multiple mortgage assets, with no single loan exceeding 10% of the portfolio’s book value in any CMI MIC fund.
The bottom line
MICs are an attractive alternative fixed income investment. They offer a combination of benefits that can be hard to find in traditional fixed-income markets, not the least of which is their yield potential. Like any investment, careful due diligence is required to make sure the fund you select is managed carefully and consistently, and aligns with your specific investment objectives and risk profile.
Choose CMI MIC Funds and gain exposure to one of Canada’s fastest growing alternative investments. Invest confidently in carefully selected, professionally managed mortgages.
