Three years after its launch, Firstmac's High Livez mortgage securities fund has A$35 million under management. That is not big, but Firstmac's chief financial officer James Austin believes that, through the fund's steady inflows and solid returns, the concept of a retail fund investing in residential mortgage-backed securities is demonstrating its worth.The High Livez fund has produced an average annualised return of 8.37 per cent - 6.8 per cent in income distributions and the balance in capital gains.The fund has a "recommended" rating from Zenith Investment Partners and a rating of 3.75 out of five from SQM Research. Both groups provide research on managed investment schemes to financial planners.Austin said Firstmac was aiming for a higher level of sales through financial planners and had set a target of $100 million of funds under management in the next 12 months.High Livez is not the only fund investing in RMBS. Liberty Financial's High Yield Fund invests in RMBS and other asset-backed securities. Pepper's High Income Fund has a similar mandate for investors with a minimum of $50,000. Other fund managers include RMBS in diversified portfolios of income securities.Firstmac, along with the others, had to overcome some high hurdles to get its fund off the ground. Some investors associate mortgage securities with the sub-prime mortgage crisis in the United States, which was a trigger for the GFC.Another negative association was with mortgage funds, which were a popular source of income before the financial crisis but became illiquid.Austin said: "Both types of funds provide investors with exposure to income from mortgages but the difference is that we are investing in securitised mortgages that are traded in a secondary market, whereas mortgage funds did their own lending."We invest in prime RMBS. There is no development finance, as there was in mortgage funds."In terms of risk, the average rating of the securities in the High Livez portfolio is AA-.When the fund was launched, the majority of its holdings were RMBS issued by Firstmac. However, as the fund has grown the assets have become more diversified and Firstmac RMBS now make up only 35 per cent of the assets. All securities in the fund are from Australian issuers and there are no non-conforming securities.The default rate is 0.2 per cent and the arrears rate (30 days or more overdue) is 0.8 per cent.Zenith's report on High Livez said: "Australian prime RMBS has been an exceptional performer, generating strong risk-adjusted returns. Zenith sees the fund as most suited to those seeking moderate capital stability and an income return that provides a solid excess over the cash rate.""I think the concept of an RMBS has proved itself," Austin said.