The 2020 coronavirus outbreak is a classic example of a ‘black swan’ event, the timing of which was impossible to predict. But the turbulence it is causing in world markets has come as less of a surprise for savvy investors.
They’ve been watching for some time with growing concern as a global bubble in risk-asset prices has been inflated by historically low interest rates. Henry Elgood, Trilogy’s Head of Investments – Fixed Income, says the mounting danger was plain to see.
“Whether it be fixed income, Australian equities, or Chinese or US equities, valuations around the world have been looking very highly priced for some time now,’’ says Henry. “The COVID-19 outbreak has resulted in something of an awakening, a reversion I think back to normality.
“It will be a while yet before we get clarity on the full impact of these events, but it’s at times like these that our investors really appreciate the stability that Trilogy’s investment options provide.’’
Trilogy’s two key investment offerings, the Trilogy Monthly Income Trust and Trilogy Enhanced Cash aim to deliver capital stability. The Trusts’ unit price has remained at $1.00 since inception (2007 and 2017, respectively).
At the same time, both have yielded consistently competitive returns, with the Monthly Income Trust producing a five-year historical average return of 7.80% per annum, and Trilogy Enhanced Cash at 4.11% per annum since inception.
Trilogy Enhanced Cash is a managed fund designed to give investors easy access to their cash, and it therefore holds approximately 70% of its funds in cash and cash-style investments. The balance of its holdings is placed in the Trilogy Monthly Income Trust, a pooled mortgage trust which invests primarily in first mortgages over Australian property.
Henry says the consistent performance of these investment vehicles reflects Trilogy’s conservative approach to risk management.
“Our investment committee meets every week to look at how our portfolios are currently performing, and what key external factors to consider going forward,’’ he says. “We’re constantly adjusting our positions and re-evaluating our thinking and strategy.
“Immediately prior to the coronavirus outbreak, for example, many of our discussions centred around the expected impact of the recent severe bushfire season.
“Obviously Australia’s GDP can be expected to pull back in the short to medium term as a result of the bushfire occurrence, but at the same time we’re also expecting growth to rebound somewhat after that on the back of a recovery and the rebuild in terms of commodities, etc – people will need certain tangibles as they rebuild their homes and communities.
“So that’s an example of an event that we look through as managers of capital, trying to predict what the outcome may be in 6 months or 12 months’ time. Now, of course, we are applying the same approach to dealing with the likely impacts of the coronavirus in both the short and longer term.’’
In line with Trilogy’s conservative investment philosophy, floating and fixed rate exposure in Trilogy Enhanced Cash focused only on investment-grade fixed income securities.
“We only allocate to investment-grade offerings in Trilogy Enhanced Cash,’’ says Henry. “We don’t go down the capital stack to take up more risky positions.’’
This approach may sometimes seem excessively cautious, but it pays off in troubled times. For example, Henry says Trilogy’s government and semi-government debt have performed extremely well in times of prices dislocation.
“We brought Australian government debt into the portfolio in the second half of last year due to the fact that it’s a good counterbalance,’’ he says.
*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.