With rapidly falling interest rates during the year it's obvious that the mortgage funds would dominate cash funds when they are put up against other.

Two of the big trends in this sector during the year has been the shift away from cash-based products as their returns fall to around the three and four per cent market to pseudo-cash funds, such as mortgage trusts.

The $319 million holds the distinction of being the most nominated fund over the eight years FundSource has run the awards. This is the sixth year it has been nominated for top honours. Guardian Trust chief investment officer Michael Good says the fund has stuck to its proven formula of having a conservative diversified book of mortgages.

The trust has a policy of limiting its mortgage exposure to 50 per cent of the property value, thus it has a very low level of defaults and arrears.

He says the trust has good quality mortgages as it pitches its rates slightly below what banks charge, and its margins are smaller.

The ANZ Mortgage Trust, which has been the foundation fund for the bank's burgeoning funds management business, has also been a good performer over the years.

The trust is used by ANZ to fund the residential mortgages the bank writes.

Marketing manager Graham Duston says one of the reasons for its success is an agreement that trust and the bank regarding defaults or bad loans.

Under this agreement the bank takes back any of the bad loans, this removing the default risk from the fund.

Duston says the fund remains true-to-label and has had good support throughout the year.

With changes in the shape of the yield curve during the year the manager has looked at making changes to the trust to enhance returns, such as investing in mortgage-backed securities, but has not implemented any of the proposals.

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