Overview of Investments
The main objective of a superannuation fund is to create financial security for Fund members to enjoy a reasonable standard of living in retirement. Investing your contributions and accumulating them with investment earnings will build up a pool of assets that will provide some or all of your income in retirement. Therefore, whilst your planned retirement date may be well into the future, the decisions you make today regarding the level of contributions and the investment option you select will be important in determining your retirement income.
The level of investment earnings you receive will depend on the investment option you select. Options with a high proportion of assets invested in shares and property are expected to achieve the highest long-term returns. However, the year to year variability of returns from these options will be high. More conservative options that invest more in cash and fixed interest will produce lower long-term returns. However, the year to year variation in returns will be less.
Which option is right for you will depend on your personal circumstances. However, generally the most important things to consider are your age now and the number of years left until retirement.
If you are close to retirement you will only provide a small part of your retirement income, you may have a relatively short investment horizon. In this situation, you may prefer one of the more conservative options that have a high level of cash and fixed interest.
If on the other hand your retirement date is many years in the future, or your superannuation will provide a large part of your retirement income, you will have a relatively long investment horizon. In this situation, you may prefer one of the options with a higher exposure to shares and property.
Investment Options
National Catholic Superannuation Fund offers members a choice of eight professionally managed investment options. Each option has its own investment objective and strategy.
The chart below provides a schematic representation of the expected long-term return and risk profile of each of the options.
Expected Long-Term Return and Risk Profiles
Pink Square - All Shares
The All Shares option invests in Australian and International shares. The All Shares option is expected to produce the highest long-term return. However, its returns are expected to be more volatile than the other options. Investors in this option should expect that it may on average produce negative returns in one out of four years.
Orange Square - Socially Responsible Investment (SRI)
The SRI option invests in a diversified mix of assets. Australian and International shares and property represent around 70% of the options assets. The remaining assets are invested in Australian and International fixed interest and cash. In the long-term it is expected to produce returns that are similar to the Capital Growth option. However, labour, economic, environmental, social and ethical standards are taken into account in selecting, retaining and realising investment funds. For example, on occasion companies with good economic credentials will not be included in the portfolio due to environmental or social factors. As a result the returns are expected to be more volatile than the Capital Growth option. Investors in this option should expect that it may on average produce a negative return in one out of five years.
What is a socially responsible investment?
A socially responsible (or sustainable) investment is where a share portfolio is oriented towards companies whose businesses are considered sustainable and where their activities contribute positively to society (eg. public health, human rights and social structures) and the environment (eg. eco systems, natural resources, and animal welfare).
The Investment Managers who invest in socially responsible investment products invest in companies that focus on broader values than just shareholder value. They have a much broader focus that includes respect for people, planet as well as profit.
“ Sustainable development is development that meets the needs of the current world without compromising the ability of future generations to meet their own needs”.
(Source: ING Investment Management Dec 2001).
Consequently, the share portfolio of a socially responsible investment must first qualify on investment fundamentals and then if suitable, a process is used to exclude companies whose activities, values and standards are inconsistent with socially responsible investment policies by applying negative and positive screening.
The positive screening criteria includes assessment of employment standards, business ethics, corporate citizenship and environmental practices.
Screening criteria – exclusions
The Investment Manager selects within each sector those companies that have the highest score along the three dimensions of people, planet and profit. Only the best companies qualify for the portfolio.
The following activities are ruled out unless the activity accounts for less than 5% of turnover:
- Weapons
- Nuclear Energy
- Tobacco
- Gambling
- Pornography
- Fur
The Investment Manager will also exclude investment companies fundamentally engaged in businesses that contravene generally accepted values and standards:
Social
- Forced labour
- Unsafe/unhealthy labour conditions
- Below subsistence pay
- Child labour in breach of International Labour Organisation (ILO) guidelines
- Unacceptable working hours
- No freedom of trade union activity
- Lack of formal labour relations
- Discrimination
- Corruption
- Dictatorial regimes
- Violation of social and other relevant laws
Environment
- Environmental transgressions without subsequent change in policy
NCSF and the Investment Manager regularly review that investments comply with the SRI screening criteria. Investments that fail the screening criteria will be sold.
Capital Growth
The Capital Growth option invests in a diversified mix of assets. Australian and International shares and property represent around 70% of the options assets. The remaining assets are invested in Australian and International fixed interest and cash. In the long-term it is expected to produce returns that are slightly lower and less volatile than the All Shares option. Investors in this option should expect that it may on average produce a negative return in one out of five years.
Managed Stable
The Managed Stable option invests in a diversified mix of assets. Australian and International fixed interest and cash represent around 70% of the options assets. The remaining assets are invested in Australian and International shares and property. In the long-term it is expected to produce returns that are lower and less volatile than the Capital Growth option. Investors in this option should expect that it may, on average produce negative returns in one out of ten years.
Cash Plus
The Cash Plus option is the Fund’s most conservative option. It invests only in short-term interest bearing securities and deposits. In the long-term it is expected to produce returns that are lower and less volatile than the Managed Stable option.
High Growth (50:50 Capital Growth/All Shares)
The High Growth option is a 50:50 mix of the All Shares and Capital Growth options. This option is weighted high in shares and over a longer period of time is expected to produce high returns. It involves a higher degree of volatility and may therefore produce negative returns from time to time.
SRI Growth (50:50 Capital Growth/Socially Responsible Investment)
The SRI Growth option is a 50:50 mix of the Socially Responsible Investment and Capital Growth options. This option is relatively weighted high in shares and other growth assets and over a longer period of time is expected to produce high returns. It involves a higher degree of volatility and may produce negative returns from time to time.
Managed Growth (50:50 Capital Growth/Managed Stable)
The Managed Growth option is a 50:50 mix of the Managed Stable and Capital Growth options. This option has a limited weighting in shares and property. There is some volatility and in some cases may produce a return lower than the cash rates and in exceptional circumstances returns may be negative.
Investment Objectives
For each investment option, the Trustee has established minimum investment return targets. There is no guarantee these targets will be achieved. The targets simply reflect the level of return the Trustee aims to achieve and the period over which it is measuring performance. The profile for each option is detailed below.
|
Investment Option |
Investment Objective |
Suitability |
Risk(6) |
Investment Time Frame(7) |
|
All Shares |
CPI(1) plus 4.5% p.a. over 7 years |
This option is suited to members that are comfortable investing over a long-term time horizon and can withstand a higher degree of volatility. This is a High Risk/High Return option. It may produce negative results from time to time. |
High |
Long-term (in excess of 5 years) |
|
Socially Responsible Investment (SRI) |
CPI(1) plus 4.0% p.a. over 5 years |
This option is suited to members wanting to satisfy environmental and socially responsive attitudes while maintaining prudent investment options. This option is suited to members seeking long-term results. Similar to the Capital Growth option there is a degree of volatility. This option may produce negative returns from time to time. |
High |
Long-term (in excess of 5 years) |
|
Captial Growth |
CPI(1) plus 4.0% p.a. over 5 years |
This option is suited to members seeking long-term returns. Similar to the All Shares option there is a degree of volatility. This option may produce negative returns from time to time. |
High |
Long-term (in excess of 5 years) |
|
Managed Stable |
Returns of 1.2 times the Bank Bill rate over 3 years |
This option is suited to members seeking preservation of capital over the short-term (one to two yesrs) and medium term returns in excess of cash rates. This is a Moderate Volatility/Moderate Return option. Occasionally investment returns may be below the prevailing cash rates and in exceptional circumstances returns may be negative. |
Moderate |
Short-term (1 year) |
|
Cash Plus |
Bank Bills(2) over 12 months |
This option is suited for members seeking maximum security for their investment over any period of time. This is a Low Volatility/Low Return option. The investment earning rate is expected to be similar to that of a Bank Bill or Cash Management Trust. This option provides security and comfort for members who wish to avoid a negative return. |
Low |
Any period of time |
|
High Growth(3) |
CPI(1) plus 4.5% p.a. over 5 years |
This option is suited to members who are comfortable investing over a long-term time fame and can withstand a higher degree of volatility. This a High Risk/High Return option and therefore may produce negative returns from time to time. |
High |
Long-term (in excess of five years) |
|
SRI Growth(4) |
CPI(1) plus 4.0% p.a. over 5 years |
This option is suited to members wanting to satisfy environmental and socially responsive attitudes while maintaining prudent investment objectives. This option is suited to members seeking long-term returns. Similar to the Capital Growth option there is a degree of volatility. This option may produce negative returns from time to time. |
High |
Long-term (in excess of five years) |
|
Managed Growth(5) |
CPI(1) plus 2.0% p.a. over 5 years |
This option is suited to members seeking preservation of capital over the short-term (one to two yesrs) and medium term returns in excess of cash rates. This ia s Moderate-High Risk/Moderate-High Return option. Occasionally investment returns will be below the prevailing cash rates and inexceptional circumstances returns may be negative. |
Moderate to High |
Short-term (one-two years) |
Legend
(1) CPI refers to the *Consumer Price Index (All Cities). *The Consumer Price Index is a measure of changes in the price of goods and services. It is the most common method of measuring the rate of price inflation.
(2) Bank Bills refer to the return on the UBS Warburg Bank Bill Index. This is a widely accepted reference rate for cash investments.
(3) High Growth (50:50 Capital Growth/All Shares).
(4) SRI Growth (50:50 Capital Growth/Socially Responsible Investment).
(5) Managed Growth (50:50 Capital Growth/Managed Stable).
(6) Risk - measures the chance that the actual investment return will be different from the expected return. When an investment risk is low it means returns are expected to vary within a fairly small range. High-risk investments are harder to predict as the returns may rise and fall significantly.
(7) Investment Time Frame is the length of time your money is invested to achieve your goals.
Types of investment (asset classes)
There are five main types of investments known as asset classes: Shares, Property, Fixed Interest, Cash and Alternative Assests.
Shares (Australian/International)
Shares (also called equities or stocks) give ownership rights in the public company in which the shares are held. Companies issue shares which are listed and traded on the stock market.
Investment Managers typically invest only in shares listed on the stock exchange. If the company or share market performs well the value of your shares may increase. If the company or share market does not perform well, then your share value may decrease. The investment returns from shares include dividends paid by companies.
Property (Direct/Listed)
Property can be owned either directly or as part of a trust. Units in the trust are usually easier to trade than direct ownership of individual properties. Some property trusts are listed on the stock exchange and units in those trusts are bought and sold like shares. Investing in property may provide rental income as well as capital growth.
Fixed Interest (Australian/International)
Fixed interest securities, also called bonds (as they include a range of bonds and debentures) are medium to long term instruments that have an agreed rate of interest. Investors lend money to a government or corporation in exchange for an agreement to receive fixed regular interest payments for a specified period.
Cash
Cash refers to money invested in a bank, building society, credit union or cash management account. It may be in the form of term deposits or bank bills invested for short periods of time. Investment Managers also refer to investments made in the short-term money markets as cash. The return on cash comes from interest.
Alternative Assests
Alternative Assests cover a wide range of investment opportunities. They include investments such as Infrstructure, private Equity and Absolute Return Funds.
An investment is considered alternative if it has a relatively limited investment history, is relatively uncommon in investment portfolios, has clearly differentiated features from any traditional asset ckass and requires specialist skills to manage.
There are a number of social and personal benefits that can be attained from investing in alternative assets, such as investing in private equity stimulate job growth and can develop products and services that enhance people's lives at a nnumber of levels.
Strategic Asset Allocation
For each investment option the Trustee has determined a strategic asset allocation. The current asset allocations are detailed below.
|
Investment Option |
Australian |
International |
Listed |
Direct |
Fixed |
Cash |
Alternative |
|
All Shares |
60.00 |
40.00 |
|
|
|
||
|
Socially |
40.00 (2) |
20.00 (2) |
7.50 |
7.50 |
23.00 |
2.00 |
|
|
Capital Growth |
35.00 |
20.00 |
7.50 |
7.50 |
18.00 |
2.00 |
10.00 |
|
Managed Stable |
17.50 |
7.50 |
5.00 |
5.00 |
35.00 |
25.00 |
5.00 |
|
Cash Plus |
100.00 |
| |||||
|
High Growth(3) |
47.50 |
30.00 |
3.75 |
3.75 |
9.00 |
1.00 |
5.00 |
|
SRI Growth(4) |
37.50 (5) |
20.00 (5) |
7.50 |
7.50 |
20.50 |
2.00 |
5.00 |
|
Managed Growth(6) |
26.25 |
13.75 |
6.25 |
6.25 |
26.60 |
13.40 |
7.50 |
Legend
(1) Alternative Assets include investment in Infrastructure, Private Equity and Absolute Return Funds
(2) SRI shares
(3) Half SRI shares
(4) High Growth (50:50 Capital Growth/All Shares)
(5) SRI Growth (50:50 Capital Growth/Socially Responsible Investment)
(6) Managed Growth (50:50 Capital Growth/Managed Stable)
Investment Managers
The Trustee invests through external Investment Managers, who are experts in the setor. The Trustee and the Investment Adviser monitor the performance of the options and the Investment Managers on a regular basis.
The assets of the Fund are managed in sectors. The assets in each sector are allocated to the professional investment managers selected by the Trustee. Each of the investment options invest in the asset sectors in varying proportions to reflect the option’s investment strategy.
| Sector Pool | Investment Manager |
| Australian Shares |
Ausbil Dexia Limited Concord Capital Limited |
| Australian Shares - SRI | ING Investment Management |
| International Shares |
AllianceBernstein Institutional Investment Management * |
| International Shares - SRI | AMP Capital Investors Limited |
| Direct Property | AMP Capital Investors Limited Lend Lease Real Estate Investments Limited – APPF Commercial Lend Lease Real Estate Investments Limited – APPF Retail |
| Listed Property | Credit Suisse Asset Management (Australia) Limited Goldman Sachs JBWere Asset Management |
| Cash | Credit Suisse Asset Management (Australia) Limited Goldman Sachs JBWere Asset Management |
| Other Assets Absolute Return Funds Private Equity |
|
(1) Credit Suisse Asset Management (Australia) Limited has delegated stock selection decisions to Capital International.
(2) Goldman Sachs JBWere Asset Management has delegated stock selection decisions to Wellington Management Company LLP.
* New Investment Manager appointed during the year.
Non-Reserving Policy
The Fund does not maintain a reserve account which is sometimes used by superannuation funds to smooth or average fluctuating investment earning rates, nor does it average earning rates. The Trustee has a policy of fully distributing income to all members each year. The absence of a reserve ensures that net investment earning rates for each investment option are fully distributed to members’ accounts each year.
Making your choice
Members may only choose one investment option. If you do not make a selection all money will be invested in the Capital Growth (default) investment option.
Getting Advice
This investment information has been prepared to provide an overview of the NCSF investment options and to provide basic investment information. It is not intended to be investment advice that takes into account your needs, objectives or financial situation. Ultimately, your investment choice is a personal financial decision. You should consider the options carefully and choose what is right for your own circumstances.
Making any investment decisions can be confusing. Whilst NCSF representatives can assist you in understanding the concepts and options, they are legally unable to provide investment advice. Therefore, you may wish to consider seeking guidance relative to your own personal circumstances from a licensed investment professional.
The following source may assist you to confirm the professional status of a financial planner:
Financial Planning Association (FPA)
National Freecall: 1800 626 393
Website: www.fpa.asn.au
The Australian Securities and Investments Commission (ASIC)
Infoline: 1300 300 630
National Office: (02) 9911 2000
Website: www.asic.gov.au
Issues to Consider
Should you elect to make your own decision, we suggest you consider the following issues:
Investment Time Frame (investment horizon)
Do you have a long or short-term investment horizon?
This is determined by your age and how many years left until retirement. If you have many years until retirement or a long-term investment horizon, you have a greater chance of achieving higher returns, with the inevitable ups and downs of higher risk investment options smoothing out over time. Short-term investment returns can fluctuate significantly particularly if a high risk investment option is chosen.
Risk & Return
Investment risk and investment return go hand in hand. Investment return should not be considered without first looking at the level of risk involved.
When making your investment choice, the two most important factors are your investment horizon and your attitude to investment risk. These determine your investment style – the level of risk you’re comfortable taking to get the returns you want over a given time frame.
Each of us has a different attitude to investment risk. The level of investment risk you’re comfortable with will depend on your willingness to accept short-term fluctuations in investment returns and other risks, such as potential loss.
Different types of investors accept different levels of risk. Some investors are willing to accept lower returns to reduce risk (effectively reducing the potential for negative returns). Other investors are willing to accept higher risk in order to increase their potential for higher returns.
The balance of your super can both increase and decrease depending on investment returns. The degree, to which you can experience negative returns, depends on the level of risk associated with your investment choice.
It is not possible to accurately predict, or guarantee how investments will perform. Generally, however, the higher the investment risk, the higher the potential returns in the long term. On the other hand, the lower the investment risk, the lower the potential return.
Switching investment options
After making your initial choice of investment strategy (at the time of joining the Fund) any change to your selected option is called a “switch”. Every year, members are offered one free “switch”, effective from 1 July. Notification is sent to members annually (usually in May or early June) advising their selected option and offering the free “switch” facility.
Please note: Switching your investment option during the year other than 1 July will incur a fee of $35.