Adviser Edge has reinstated the three-and-a-half star rating for the Challenger Howard Wholesale Mortgage Fund after Challenger carefully re-opened the fund for redemptions.

The research house had put the fund on hold in October last year, after Challenger suspended redemptions in response to a flight to cash by investors.

Two weeks ago, Challenger made investors withdrawal offers to which they can respond until 20 February this year.

The company will continue to offer a limited withdrawal amount based on the available liquidity at the end of each quarter.

"Mortgage trusts are likely to outperform cash and term deposits in the long-term," Adviser Edge property analyst Eduardo Tellez said yesterday, explaining the reinstatement.

Tellez will conduct a formal review of the fund in the second half of this year, and will keep the fund and the mortgage sector on watch, he said.

Standard & Poor's still has the fund on hold, and is not likely to change this as a result of the withdrawal offer, S&P Fund Services analyst Peter Ward told InvestorDaily.

"It is still a temporary measure; they don't offer daily redemptions," Ward said.

S&P would consider lifting the suspension of the fund's ratings if daily redemptions were reinstated, but said such a move would also depend on the fund's ability to maintain appropriate liquidity levels, he said.

Morningstar will also continue its hold rating as a result of the measure. "It's only a limited window that is likely to be scaled back depending on demand for withdrawals, which we anticipate will be high," Morningstar analyst Tim Murphy said.

But Murphy said Challenger's move was a positive development for the sector.