Rising returns and improved transparency could provide "flourishing" conditions for Australian mortgage trusts, according to SQM Research, which analyses property investments.
Mortgage trusts, a sector battered by the liquidity squeeze and volatility following the global financial crisis, have produced an average return of 4.5 per cent during the past five years, the research found.
By comparison, rates of return on cash in most bank accounts is negative; government bonds are at 2.6 per cent in Australia and 1.8 per cent in the United States.
Louis Christopher, managing director of SQM, said yield-hungry investors are prepared to increase risk to boost returns.
"Record low interest rates, lower volatility and the search for yield provides the bedrock for the mortgage trust sector to flourish," Mr Christopher said.
The trusts use investor funds to buy a diversified portfolio of mortgages with different risks and returns.
SQM assesses leading funds on criteria ranging from asset quality and transparency to management experience, and rates them up to five stars.
Four and a half stars and above is outstanding, and anything below three stars is forgettable.
La Trobe Australian Mortgage Fund - Pooled Mortgages Option, yielding 6.10 per cent, is rated 4.25 stars. More than half the fund is invested in residential mortgages with the bulk of the balance in office, industrial and retail.
SQM likes the benchmark-beating yield and its experienced management, led by Randal Williams.
Other top performers include Balmain Private Discrete Mortgage Trust and AIMS Commercial Mortgage Fund, which are both rated 3.75 stars.
In a separate report, SQM concludes the securitisation market, which is dominated by residential mortgage backed securities, continues to recover but its still below pre-GFC levels.
PIM High Income Fund, which returned 8.7 per cent, received a 4.25 rating. SQM claims management is experienced, disciplined and thorough.
Firstmac High Livez Fund, which returned 6.3 per cent, scored 3.75.