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Alternative Investments: Mortgage Investment Companies

In addition to my regular allocations to equities and bonds, I recently opened an alternative investment in a Mortgage Investment Corporation. For those who aren’t aware, like me until a year ago, an MIC is a class of Canadian corporation similar to an REIT that issues mortgages instead of owning property. This one deals in short-term high-interest loans, with some being special situations like construction rather than just people with bad credit. Currently my investment is just a small amount to keep track of where things go and see if it becomes a better opportunity in the future.

I heard about this last year, and I found it interesting that it’s got good returns (currently at their low point due to declining interest rates) but not everyone is likely to invest in it. The stock market is very accessible to investments from anyone, which shows with frequent overpricing and wild swings (ok, a thinly traded market would probably swing even more wildly). As much as I still believe in the stock market and will use it as a foundation for my portfolio, I’m keeping my eyes open for alternative investments that are less accessible or align with my skills.

This definitely qualifies as being less accessible since you have to find it, research it, and then jump through a few hoops to invest, probably all on your own (not many financial advisers will risk their reputation on something like this). The MIC I chose is not publicly traded although some are. Of course it’s possible that institutional investors could jump in but even they face a risk to their reputation with less popular asset classes and they might come in at a size that takes them to a different part of the market. At the high end this would be banks and the major national lenders issuing mortgages with highly competitive rates but at the low end there are a lot of little-known companies and less intense competition.

I believe this particular MIC has good management and a good spot in the market. It’s fairly small but gets good returns. Since I constantly study management for my own business I’m betting that I can see some of the risks and traps of poor management, although I also know it’s harder to see at a distance.

I don’t see this becoming a significant part of my portfolio, because it is risky and illiquid. But it could boost returns a bit and make things interesting. Now I just need to figure out how to classify it in my asset allocation…

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  1. November 20, 2011 at 5:00 pm

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