Income trusts to grow?

Press, 27 September 1988, Page 37

Income trusts to grow?

“The next 12 months is going to see a dramatic change for savers who have been used to receiving a high interest return over the last few years,” said Peter Baynes, managing director of Tower Trust. “Lending rates of the major banks have come down a few percent over recent months and the banks are now embarked on a path of softening up depositors to get them conditioned to accepting lower rates on their savings. “Savers can expect quite sharp reductions in the rates they earn in the year ahead, heading down into single figures.” “Savers are not quite getting the full story, however. One of the reasons the banks need to push

deposit rates down is because their ‘free’ deposits — the funds people keep in their cheque accounts — are not earning as good returns for the banks now that lending rates are lower. “In that situation, either deposit rates have to go down or the banks’ profits will get squeezed. There are no prizes for guessing which will happen first. “This environment is going to provide a major opportunity for income generating unit trusts such as our Tower Mortgage Income Trust, which works very much like a bank term deposit.

“Income trusts are a new phenomenon made possible by the introduction of dividend imputation, but they will very quickly become an estab-

lished part of the conservative investment scene. “The reason the opportunity is that for this type of investment is that unit trusts are very cost-effi-cient and that means the income generated does not get dissipated in costs. “Our Tower Mortgage Income Trust, for example, will be paying out equivalent to 16 per cent p.a. (gross) on its October quarterly distribution. That is an extremely good rate for a capital guaranteed investment made possible only by the fact that our costs are very low, certainly much lower than those of the banks or other major deposit-taking institutions. “Unit trust managers like us will be telling savers over the period

ahead that they do not have to accept the lower interest rates or their savings that the banks are trying to impose on them and that we can provide them with a better alternative. “Certainly at Tower Trust we shall be broadcasting a very loud and clear message that we can offer investors in our income trust the prospect of significantly better returns without their having to sacrifice an ounce of security. “From the growth being experienced by our trust at present it seems clear that a number of people have already understood that message but we will be taking it to many more and we will not be alone,” Mr Baynes said.