The overall objective of VicSuper’s investment strategy is to optimise risk-adjusted returns for members, in accordance with the Investment Policy Statement.
Our strategy determines how we construct our investment portfolio and it is formulated by:
- setting rolling 10 year risk adjusted investment objectives which are designed to deliver a return above inflation;
- determining a strategic asset allocation (set on a longer term basis);
- implementing dynamic asset allocation tilts (as we seek to capitalise on valuations when significant market inefficiencies and anomalies arise);
- selecting investment managers to populate a core (indexed/enhanced indexed strategy) and satellite (active strategy with the aim to generate returns higher than the benchmark) investment structure; and
- integrating ESG factors into our investment process.
Strategic & dynamic asset allocation
Each of VicSuper’s investment options is invested according to a strategic (long-term) asset allocation.
Options that are invested across more than one asset class (the Capital Secure, Capital Stable, Balanced, Growth (MySuper), Equity Growth and Equity Growth Sustainability investment options) also include dynamic asset allocation ranges which mean VicSuper can increase or reduce the exposure to an asset class, depending on market conditions.
Strategic asset allocation
It is the strategic asset allocation which primarily influences the expected investment risk and return for each investment option.
The strategic asset allocation is designed to achieve the long-term investment return objective for each investment option. It therefore determines how each option is invested across the asset classes.
To set the strategic asset allocation for each option we act on advice from our principal asset consultant, Frontier Advisors Pty Ltd.
The strategic asset allocation and investment strategy may be altered from time to time (including through dynamic asset allocations). As a result, the asset allocation and investment objective for each investment option may change.
Dynamic asset allocation
Dynamic asset allocation involves adjusting (or tilting) a portfolio (within approved ranges) to respond to market conditions.
This means VicSuper may:
- shift the asset allocation away from the neutral strategic asset allocation if the conditions in the capital markets indicate a buy or sell opportunity
- invest in opportunities which provide compelling risk-adjusted returns over the one to three year horizon, but may not be long-term strategic investments.
Dynamic asset allocation aims to add incremental returns to VicSuper Fund member investment options, help reduce investment volatility and generate more stable returns over time.
This approach provides flexibility in re-balancing asset allocations and allows VicSuper to be best placed to take advantage of opportunities in the market.
To manage the dynamic asset allocation process we use specialist advisors from Towers Watson who work with the VicSuper Investment team to recommend, implement and manage dynamic asset allocation tilts.
In the absence of dynamic asset allocation tilts, VicSuper aims to maintain asset allocations that closely replicate the relevant strategic asset allocation for each option.
Core & satellite
VicSuper’s 'core and satellite' approach involves using index or enhanced index investments as the core of a portfolio, with actively managed satellite investments to complement the core.
The core portion of the portfolios (which makes up the majority) is managed passively (ie index or enhanced index).
For core investments we seek to achieve investment returns equal to the return of the relevant financial market or benchmark.
The satellites are actively managed investments where the aim is to exceed the returns of the market within a risk-controlled framework.
Active equity investment management involves looking for mispricing in markets. Mispricing occurs when a company’s share price is considered to be lower than the company’s real value.
VicSuper uses active investment strategies to invest in Australian and International listed shares and fixed interest. Find out more about asset classes.