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The investment offering competitive returns in low-rate times


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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.

mortgage trusts

The mortgage trust sector has enjoyed substantial growth in recent times according to SQM Research's 2020 Mortgage Trust Sector Review. This is 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, several mortgage trusts continue to deliver competitive returns to investors.

Why investors turn to mortgage trusts as part of a balanced portfolio

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 is 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.

The impacts of COVID-19 on the sector

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''.

Reasons to be optimistic about mortgage trusts include the strength of the construction industry over the previous lockdown period. There's also little evidence of supply breakdown for any projects. In addition, sales of completed stock continue to perform as expected.

A good mortgage trust manager will take a proactive approach to investment management, with its primary focus being mitigating risk, protecting capital and continuing to pay monthly distributions. They will  also monitor market changes and any potential impacts, as well as  work closely with its borrowers to manage risk.

Learn more about investing in Trilogy's range of mortgage trusts, diversified income funds and property trusts.

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 www.trilogyfunds.com.au. 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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Philip Ryan is the managing director of Trilogy and is the fund manager for Trilogy's trusts. A solicitor for more than 30 years, he has experience in commercial and corporate law. Philip is a Fellow of FINSIA and has qualifications in mortgage lending and financial services. His experience in the financial services industry dates back to 1986. Philip was a founding director in 1998 of the funds management entity which evolved into Trilogy.
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