MIC Investors

Many investors who hold units in a Mortgage Investment Corporation share a common mindset: the distributions arrive monthly or quarterly, the return looks reasonable, and there is no obvious reason to revisit the decision.

It is an understandable position. But it rests on an assumption worth examining.

The number most investors focus on

When evaluating a MIC, most investors look at one figure: the average annual return. If a fund has been paying eight percent consistently, it feels like evidence that the investment is working.

The problem is that the return tells you what happened. It does not tell you how the portfolio is built or how it might behave if market conditions change.

Two MICs can report identical returns while carrying very different levels of structural risk. One may hold a diversified book of first mortgages across multiple provinces, with conservative loan-to-value ratios and a large number of individual loans. Another may be concentrated in a single region, weighted toward second mortgages, with a smaller number of larger loans and a higher arrears rate.

In stable conditions, both may perform similarly. Under pressure, they may not.

What experienced investors look at instead

Beyond the headline return, the structure of the loan portfolio is where risk actually lives. Relevant factors include the ratio of first to second mortgages, distribution of loan-to-value ratios, geographic concentration or dispersion, the number of loans in the book, arrears rates, and the capital cushion available to absorb losses.

None of these are exotic metrics. They are simply not the ones most investors ask about.

The case for looking across multiple managers

This is not an argument against any particular MIC. Many funds are well-run and well-structured. The more relevant question is whether holding a single MIC, regardless of how strong it is, creates a concentration risk that could be diversified.

A single MIC represents one manager, one lending strategy, and one loan book. Investors who diversify across multiple MICs and managers spread that exposure across different portfolios, geographies, and underwriting approaches. Professional investors who allocate to  private lending vehicles seek manager diversification as a risk management tool. Many financial advisors working with individual investors may only have one MIC to recommend, so there is a built in bias.

The goal is not to replace a performing investment. It is to improve risk management and diversification by allocating to more than one excellent manager.

A starting point

For investors who want to understand how their current MIC is structured and whether diversification across managers might strengthen their income portfolio a short guide exploring these questions in plain language is available – download it here.

_{Shannon August, CFA, works with investors navigating private mortgage investments. This article is for educational purposes only and does not constitute investment advice.}