An investment paying a stable income, substantially higher than inflation, the Trilogy Monthly Income Trust is enjoying monthly inflows from yield-focused Australian investors.
The Trust maintains a unit price of $1 and pays investors a monthly distribution that has averaged 7.82% p.a. since inception in 2007 and most recently paid investors 7.30%p.a. for the month of September.* Some investors choose to receive their distributions as monthly payments, while others prefer to automatically reinvest them.
So how does the Trust achieve such a high rate of return in today’s ultra-low-yield environment, whist keeping risk front of mind?
Sources of income
The Trilogy Monthly Income Trust is a pooled mortgage investment, also known as a mortgage trust. Funds raised from investors are used to finance residential, commercial, industrial and retail property development and construction in Australia.
With banks and other traditional lenders withdrawing from the property loan space in recent years, the Trust has enjoyed an increase in both the quantity and quality of loan applications.
Property is by nature not a very liquid investment.
However, the Trust takes a very conservative approach to managing liquidity risk, and since its inception in 2007, has paid a distribution every month and honoured all withdrawal requests.
In fact, compared to other residential property loans, which may have repayment terms of 20 years or longer, the Trilogy Monthly Income Trust’s loan portfolio is comparatively short term. It lends mainly for property development and construction and has a maximum initial loan term of 24 months.
Investing in property often entails investing large sums of money into one or a few assets. This risk of ‘having all your eggs in one basket’ is referred to as diversification risk.
The Trilogy Monthly Income Trust manages this by ensuring its loans are not concentrated in one type of property, group of borrowers or geographical area.
It limits loans to a maximum of $15 million each, and currently has 72 different loans, offering a level of diversification that would be difficult for an investor to achieve on their own.
Loans are mainly used for residential construction but can also include commercial, retail, development sites and industrial properties.
Geographically, the Trust has diversified its loans across Queensland, New South Wales, Victoria.
The Trust has a maximum loan-to-valuation ratio of 70%, with the security consisting of registered first mortgages.
Before any loan funds are paid out, all properties must be valued by one of the independent, qualified and registered valuers on the Trust’s approved panel of valuers, and the valuation must be less than 3 months old.
Investment management experience
When managing risk on behalf of investors, the Trilogy team draw on their extensive experience. The best protection against risk is active management and an investment process that is stringent, compliance-driven and strictly adhered to from end to end.
In a 2019 report on the Trilogy Monthly Income Trust prepared for use by financial advisers, independent research institute SQM Research rates the Trust a “Superior” grade investment.
SQM Research noted: “The Trust’s investment team has a significant depth and term of experience in property finance and lending, with several key staff from the banking sector.
“Management is of a very high calibre … the lending process is managed by experienced and qualified personnel, conducting extensive checks and balances to manage risk properly.’’
No investment is without risk, but the Trilogy Monthly Income Trust provides competitive returns driven by an investment process predicated on risk management.
*Previous month’s distribution rate is for the month ending 30 September 2019 and was equivalent to 7.30% per annum. Past performance is not a reliable indicator of future performance. This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425 as responsible entity for the managed investment schemes mentioned in this article. Trilogy has issued a Product Disclosure Statement (PDS) for each of the managed investment schemes mentioned within this article. The PDSs are available at www.trilogyfunds.com.au or by contacting us. You should obtain a copy of the relevant PDS, understand the risks, and seek personal advice from a licensed Financial Adviser before investing. Investment in the Trust is subject to terms and conditions, and risks which are disclosed in the PDS. These risks include the risk of losing income or principal invested. Applications will only be accepted on the application form that accompanies the PDS. These managed investment schemes are not bank deposits and Trilogy does not guarantee their performance.
The information on this website contains general information and does not take into account your personal objectives, financial situation or needs. Trilogy is only licensed to provide general financial product advice on its own products and does not consider your objectives, financial situation or needs when providing any information or advice.