Mortgage trusts a compelling option for investors

Australia’s $15 billion mortgage trust sector has long been popular with investors looking for competitive investment income as part of a diversified portfolio.

In 2020, as economic uncertainty has soared and returns from investments such as dividends and bank savings have continued to shrink, the sector has provided a genuine alternative.

At the same time the industry provides an essential service to property developers, who are finding it harder than ever to get support from their banks.

The mortgage trust sector has enjoyed substantial growth in recent times according to SQM Research’s 2020 Mortgage Trust Sector Review and at this time is managing the impacts of COVID-19 well, thanks to continued investor support and the underlying strength of the Australian property sector.

While past performance should not be taken as an indicator of future returns, a number of mortgage trusts continue to deliver competitive returns to investors.

The top-performing trust in SQM’s July 2020 update, the Trilogy Monthly Income Trust, has returned 7.75% p.a.* since inception in 2007, and recently reported a monthly distribution equivalent to 6.53%p.a.* for August 2020.

The Trust currently has over 85 loans in its portfolio, stretching across Queensland, New South Wales and Victoria and mainly comprising residential property development loans consisting of land, townhouses, units and houses.

While all investments carry risk, the Trilogy Monthly Income Trust is professionally and proactively managed by the experienced Trilogy team and backed by first mortgages secured over Australian property.

Mortgage Trust Sector Performance | Trilogy Funds Australia

So, what is a mortgage trust?

Also referred to as mortgage funds, mortgage trusts pool investor money to lend to borrowers while taking a mortgage over the underlying property. Loans may be for land subdivision projects or to finance construction and property development.

Mortgage trusts aim to provide investors with a regular income called a distribution from the interest paid by borrowers, as well as cash and other investments held by the trust.

In today’s historically low-rate environment, many investors consider an exposure to mortgage trusts as part of a balanced portfolio.

However, as is always the case when investing there is no return without risk. When assessing mortgage trusts, investors should consider asking questions such as:

  • Does the Trust have an established track record?
  • Does management have the necessary expertise and experience?
  • What is the Trust’s withdrawal policy?
  • Does it have a diversified loan portfolio?
  • What are the Trust’s lending criteria and valuation policy?
  • Can you as an investor accept the risks involved?

This information should be readily available from the Product Disclosure Statement available from the fund manager.

Independent, unbiased third-party reports such as those offered by Australia Ratings or SQM Research can be helpful in addition to seeking advice from a licensed financial adviser. For example, the SQM report classes the Trilogy Monthly Income Trust as a “Superior Investment Grade” fund and says its management is of a “high calibre’’.

Assessing the potential future impacts of the COVID-19 health crisis on Australia’s mortgage trust sector, SQM notes that the long-term trajectory of the pandemic and the economy is unclear. Some mortgage trusts may experience slowing or negative fund inflows, and some may become more conservative in their lending standards.

However, SQM notes that “the mortgage funds sector entered into this crisis in a healthier condition as compared to pre-GFC, including better lending standards and a better liquidity match’’.

At Trilogy, we continue to monitor market changes and any potential impacts, and we work closely with our borrowers to manage risk.

We’re optimistic given the strength of the construction industry over the previous lockdown period, and at this time continue to see no evidence of supply breakdown for any projects. In addition, sales of completed stock continue to perform as expected.

We’re taking a proactive approach to investment management, with our primary focus being mitigating risk, protecting capital and continuing to pay monthly distributions.

Learn more about investing in the
Trilogy Monthly Income Trust >

*Distribution rate for the month ending 31 August 2020 annualised was equivalent to 6.53% per annum for the Trilogy Monthly Income Trust ARSN 121 846 722. Distribution rates are calculated daily, paid monthly in arrears and are net of management fees and costs, and assume no reinvestments. Distributions for the Trust are variable each month and depend on the performance of the underlying assets.

This article was prepared by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) and does not take into account your objectives, personal circumstances or needs nor is it an offer of securities. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 December 2018 for the Trilogy Monthly Income Trust and available from The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy, involve risk which can lead to loss of part of or all your capital or diminished

returns. Trilogy is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed adviser to conduct an analysis based on your circumstances. Investments with Trilogy are not bank deposits and are not government guaranteed.

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