What are Defensive and Growth Investments?

Understanding the difference between defensive and growth investments

When it comes to investment planning, there are two common approaches investors use. These are defensive investments and growth investments.

Understanding the differences between these two approaches can help investors make informed decisions tailored to their risk tolerance, current financial situation and their overall investment goals.

Defensive Investments

Defensive investments, also known as conservative or safe investments, are designed to protect the investor’s capital and provide stable, reliable returns.

The primary focus is on preserving the principal and generating steady income, rather than achieving high growth. Examples of fixed rate investments are cash (e.g. high-interest savings accounts) and fixed-rate investments (e.g. government bonds, debentures and capital notes).

Growth Investments

Growth investments aim for significant capital appreciation over time and are more suited to longer term financial goals (+5 years). These investments are usually more susceptible to economic trends but offer the potential for higher returns over time. 

Investors pursuing growth strategies should be willing to accept greater risk for the possibility of a higher rate of return. Examples of growth investments are property, shares, and alternative investments like private equity, commodities, and investment funds.

Understanding your investor profile

When it comes to investment planning, where you’re at in your lifecycle will play a big role in the investment type you choose. If you’re just starting out in your career and want to build your wealth then a growth strategy will probably make sense, whereas, if you’re heading into retirement and don’t want to risk losing your life’s savings then a defensive strategy might be more suitable. Sound investment planning generally  includes both defensive and growth investment strategies so that you can weather any market volatility but still grow your wealth when conditions are favourable.

The proper balance of the two approaches will depend on your investor profile. Hence, it’s always good to consult with an independent financial advisor to help you assess the investment strategy tailored for your profile and current financial situation. 

Is APG’s Pooled Mortgage Fund a defensive or growth investment?

Mortgage funds are generally classified as a “growth investment” because they aren’t a fixed income asset, however, we find that those who invest in APG’s pooled mortgage funds are in all stages of their investment journeys. While there is more risk than a fixed income or cash investment, we endeavour to mitigate risk as much as possible. One way we do this is by conducting extensive due diligence on our borrowers before making the lending decision. We also have a diversified portfolio and use conservative loan-to value ratios. 

Pooled mortgage funds,also called private credit investments, pool money from multiple investors and lend it out to borrowers. Investors make profit from the interest paid by the borrowers. APG’s pooled mortgage fund is lent out exclusively to commercial borrowers and there are around 30 loans in the portfolio at any given time, all of which are secured by Australian real estate. 

Therefore, APG’s pooled mortgage fund provides instant diversification as the risk to the investor is spread across multiple loans. Should a borrower default, other loans in the portfolio will still be performing.

Moreover, because all the loans are secured by property, APG’s credit management team at Private Mortgages Australia (PMA), have the means to liquidate the security property for loan recovery. 

Investors in APG’s pooled mortgage fund aren’t locked into lengthy investment terms like you are for most defensive investment types like bonds. We offer redemptions on a quarterly basis so if an investor needs to access their funds they have the ability to do so within a reasonable amount of time. 

For investors with longer-term goals, they may opt to re-invest their returns to compound their interest over time. This is done through the Distribution Re-investment Plan or DRP.

Who can invest in APG’s Pooled Mortgage Fund?

APG’s pooled mortgage fund is open to both wholesale and retail investors. The minimum investment for wholesale investors is $25,000, while the minimum investment for retail investors is $10,000. You can invest as an individual investor, jointly or via a self-managed super fund or a trust. 

As mentioned earlier, always seek professional advice when assessing whether APG’s pooled mortgage fund aligns with your investment goals. The information in this article is of a general nature and does not constitute professional advice. The returns listed on the APG website indicate past performances but do not guarantee future returns.

If you have any questions regarding APG’s pooled mortgage fund, feel free to contact our investor relations team and they will gladly answer any of your queries.

If you have any questions about investing in private mortgages then please send us a message via our Contact Page.