English 
Why Mortgage Investment Corporations (MICs) Should Be Part of Your Investment Strategy
Investors have faced considerable challenges with traditional asset classes like stocks and bonds in recent years, including market volatility and concentrated portfolio risks. One effective way to address these issues is by incorporating alternative investments into your portfolio. In this post, we’ll explore how Mortgage Investment Corporations (MICs) can offer stable returns and diversification, helping to enhance portfolio performance and meet your clients’ financial goals.
The Growing Role of Alternative Investments
In today’s investment landscape, alternative assets are becoming essential for achieving greater portfolio diversification and boosting returns. According to industry reports, a significant number of investment advisors (81%) believe that incorporating alternative investments into their offerings helps them stand out from competitors. Mortgage Investment Corporations (MICs) are one such alternative investment, offering a way to access real estate markets and earn stable returns that are largely independent of stock market fluctuations.
The Limitations of Traditional Portfolios
For decades, the traditional 60/40 portfolio (60% stocks, 40% bonds) has been the go-to strategy for many investors. This allocation was designed to balance risk and reward, with stocks providing higher returns during favorable market conditions and bonds offering stability when markets decline.
However, as market dynamics evolve, this classic model is increasingly under pressure. In 2022, both equities and fixed income saw declines, driven by persistent inflation and rising interest rates. As traditional asset classes struggle, investors are turning to alternatives for better returns and more stable performance.
What Are Mortgage Investment Corporations (MICs)?
Mortgage Investment Corporations (MICs) are investment vehicles that pool funds to invest in a diversified portfolio of mortgages. These vehicles provide exposure to the mortgage market, offering investors the potential for steady income while minimizing credit risk through diversification across various properties and regions.
Amur Capital, for example, offers three MIC funds that allow investors to earn a targeted yield. All mortgages in their portfolio are secured by residential properties, ensuring a stable and diversified income stream for investors.
Comparing MICs to Other Investments
As an advisor, your goal is to help clients meet their financial objectives while managing risk effectively. Here’s how MICs compare to other traditional and alternative investments:
| Investment Type | MICs | Private Lending | Private Equity | Bonds | Stocks |
|---|---|---|---|---|---|
| Minimum Investment | $25,000 | $50-250k per mortgage | $250,000 or more | $5,000+ | Minimal |
| Liquidity | Relatively liquid (90-day redemption) | Less liquid | Highly illiquid | Relatively liquid | Relatively liquid |
| Ownership | Shareholder | Creditor | Asset ownership | Creditor | Shareholder |
| Performance | Linked to mortgage quality and interest rates | Dependent on mortgage quality and leverage | Based on company performance and market timing | Tied to bond credit quality and market movements | Dependent on company performance and market sentiment |
| Earnings | Monthly income (cash or reinvested shares) | Monthly borrower payments | Long-term capital gains | Interest payments, typically semi-annually | Gains from share value appreciation |
| Diversification | Broad exposure across various mortgages | Single mortgage exposure | Diversified across multiple companies | Portfolio of bonds | Can diversify across sectors and markets |
| Volatility | Low volatility | Low volatility | Low volatility | Low volatility | High volatility |
Three Key Ways Advisors Use MICs
MICs were first introduced in 1973 to support the Canadian housing market by encouraging private lending and increasing accessibility to real estate investments. Over the years, they have become an increasingly popular alternative for advisors looking to diversify client portfolios and reduce risks. Here’s how advisors use MICs in their strategies:
1. Easier Access to Real Estate Investment
Real estate is a popular investment choice, but many investors find it difficult to raise sufficient capital or handle property management. MICs eliminate these barriers by allowing investors to participate in real estate without the need to directly own or manage property. Through professional fund managers, MICs provide access to high-quality, diversified mortgages, making real estate investment accessible and hassle-free.
2. Supporting Clients’ Financial Goals
As traditional 60/40 portfolios face increasing challenges, MICs provide the diversification and steady returns needed to enhance portfolio resilience. The alternative lending space, including MICs, continues to grow, offering an effective investment strategy to navigate economic uncertainties.
3. Differentiating Your Advisory Services
In a competitive market, offering alternative investments like MICs can help advisors stand out. A study by Invesco found that 81% of investment advisors agree that using alternatives in client portfolios enhances their service offerings. By incorporating MICs, advisors can offer clients diversification, higher risk-adjusted returns, and access to specialized investment opportunities that aren’t typically available through traditional stock and bond allocations.
