In a better place

The coronavirus and its economic effects sent shockwaves through financial markets in the first quarter of 2020, and the impact on investors will be felt for months if not years.

At the height of volatile sharemarkets in March, and in the weeks that followed, comparisons were drawn (and will continue to be drawn) between the 2007-08 GFC and the global Covid-19 pandemic.

The GFC was started by the collapse of the US housing market. Once this ripple hit Australia, the crisis was more of a tsunami and investors rapidly moved their money out of higher-yielding investment products – mortgage trusts included.

GFC versus Covid-19

Several mortgage trusts survived the GFC and several folded. There were trusts that continued to pay investors monthly or quarterly income (loan repayments from borrowers) but had to limit or suspend redemptions because of significant liquidity issues (i.e., investment units in mortgages couldn’t be sold and converted to cash quickly). Skip to 2020 and you haven’t heard about these same problems