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.
- 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.
- 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.
- Furthermore the annual account fee I paid to my trustee lowered my Antrim Mortgage Fund return by 1.3%.
- 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.
That being said, I can’t complain. Making 4% isn’t much, but it’s still better than losing 9%. So I’m still glad to have put $15,000 in MICs instead of the general Canadian stock market.
Prudent investing requires us to understand why we own something. The reason I bought MICs in the first place was to have a stable stream of income which provides a return that doesn’t correlate with the conventional financial markets. To that end, I think my MIC investments have done exactly what they were designed to do last year. 😀 Even my worst performing MIC outperformed the TSX index. And Atrium (AI) recently increased its monthly interest payment by 2.4% from $0.07 per unit to $0.0717.
For the two publicly traded MICs I combined their interest payments with unit price changes to obtain the total returns. As for the private MIC, Antrim Balanced Mortgage Fund, I started the year with a portfolio value of roughly $10,300. As we can see from my account statement below, the fund paid out $592 of interest over the course of 2015, net of management fees. However, the trustee has a $131 annual fee so my net earnings turned out to be $461, which is a 4.5% total return.
Planning for 2016
This year I plan to invest at least another $10,000 into a variety of different MICs to continue earning more interest income. I don’t think Canada’s economy will get much worse than it currently is. The price of oil dropped about $30/barrel last year. It would be virtually impossible for it to drop by that much again this year. I plan to mitigate the high fees associated with the Antrim Mortgage Fund by investing more money into the account this year so the cost will drop as a percentage of the portfolio value. I also plan to buy more Atrium (AI) and possibly include Firm Capital (FC) into my portfolio to diversify my mortgage funds so if one of them under-performs again it won’t drag down the performance of my overall MIC portfolio as much as I did last year.
It’s exciting to experiment with unconventional investment ideas. And it’s important to analyze the results after a period of time and tweak the method to make it even better. This is how we ultimately win at the game of investing. 😀
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Random Useless Fact:
In June 2015 the U.S. Supreme Court ruled that same-sex marriage is a legal right across the country.
Good gain on MIC Liquid !!!
I hold 100 shares of Firm Capital (FC) for almost 4 years. Its one year return is 6.50% + 7.33% interest + special payments in December.
I almost received 45% of my initial investment 😀
Have investing!
I’ll probably buy some FC this year. Maybe just 200 shares to start.
Re: RUF
Just goes to show how much influence religion has on politics. Yikes.
It’s really interesting what’s going on in U.S. politics right now. Trump and Sanders leading the polls lol. I’ve never seen the American people be so divided before in past elections.
Since your house is worth 25% of your assets, it seems like this allocation to CDN real estate is an overweight on that asset class. Are you making a claim that CDN housing is underpriced, and if not, why not get yield from alternatives, real assets or other sources such as farmland?
Not sure why primary residence is tallied in net worth, anyway. The only way he can access that capital is to use a home line of credit — pay to use his own money, or sell the asset…but then he has to use that money in exactly the same way — to put a roof over his head.
I never include my house in net worth, makes the picture a lot more clear.
It’s really hard to tell how much money he makes from his investments. He has about $160,000 investment amount, can he make 10%, 20% or 30% gains year or year ? Besides, it’s even harder to tell what his investment style is, value, contrarian or momentum. It’s more like how he feels like, just look at his Netflix investment. How can he come to the conclusion that mortgage investment is safer than others. If commodities go down, it will for sure affect the housing market, and so the mortgage corps. He also claims that he can sleep well when he has multiple income streams. Well, I sleep sound and well when I have no debt. He’s probably doing okay overall, but not something spectacular and definitely not something you want to copy.
Last year I made $16,000 of income from my investments, which came from roughly $650K of investable assets. I explain where the money came from here. https://www.freedomthirtyfiveblog.com/2016/01/look-back-2015.html In terms of unrealized gains I’ve had over $50,000 of investment appreciation in 2015, which I broke down in detail here. https://www.freedomthirtyfiveblog.com/2016/01/dec-2015-fiscal-update-best-year-ever.html I don’t write about total investment returns year over year because there’s no consensus of how real returns are calculated. 🙂 For example, from a cash flow perspective my farmland is losing thousands of dollars a year, which makes it more of a liability than an asset. https://www.freedomthirtyfiveblog.com/2015/08/farmland-profitable-profit-loss-valuation.html And since I haven’t sold the farm yet one could argue the unrealized capital gain I state in my net worth could be overvalued and not representative of the current market price in Saskatchewan’s slowing economy. 😕 So what I do instead is break down the numbers, separate the asset classes, post about profit/loss statements about just my farm business, and write about my MICs performance by themselves like in this week’s post. This way, it takes out some of the subjective nuance from my writing so readers can focus on the empirical data and come up with their own conclusions about my… Read more »
Who is in a better position Bob with some asset and a fully paid house or Joe with the same asset but no house ?
The house is an asset that pay you in saved rent.
Faulty logic.
Hi HarperFanClub. I don’t think housing in Canada is underpriced at the moment. Roughly a quarter of my asset allocation is in my home, which I don’t think is too much. I do like farmland as well but that’s already at 45% of my asset allocation so I’m not looking to increase my exposure there. Alternatives are a good way to get yield and I would like to find more opportunities to make money in the exempt market.
“Alternatives are a good way to get yield…” When people use the term “alternatives” it always makes me chuckle. You are, I’m assuming, refering to private equity. What’s your definition of “a good way” and what kind of yield? “…I would like to find more opportunities to make money in the exempt market.” The exempt market has a very narrow scope of sectors, few alternatives — debt, oil, real estate…that covers about 90% of what’s offered in the Canadian exempt market. I am an ex-exempt market advisor, and I can tell you there are very few opportunities the EM offers which cannot be found within the public market. For instance, the firm I worked for stated the aggregate return for their products was ~8%/yr. Onex (OCX), the Canadian private equity monster, has averaged a 9%/yr return for its shareholders. Why would I force my money into private equity when I can enjoy a much better risk-adjusted return using a different vehicle? I’d seriously consider exploring listed PE way before the private exempt market (remember, I used to push this stuff…it’s not the retail investor getting rich from these deals). Another consideration is that by investing in the exempt market you… Read more »
It’s truly fascinating what’s happening in U.S. governmental issues at this moment. Trump and Sanders driving the surveys lol. I’ve never seen the American individuals be so isolated before in past races.
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Is it possible to buy MIC in a transfer agent like Computershare? Or is it better to buy in a discount brokerage.
When are people going to wake up and realize Antrim’s return is way too low for the risk. It is a 20-30% leveraged fund giving investors back sub 6%
Fees are too high plus trailers paid to FA’s. Yes every RRSP season people pile in.
Almost any other well managed private mic would return higher than Antrim.
One thing to be aware of with FC is the amount of concentration and exposure they have to specific borrowers. If their bugs clients get over leveraged they will have problems.
Google MIC insolvencies. Happens more often than you think.
Never do a syndicated construction mortgage. That is the worst mortgage product for the return given.
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