Asset classes
An asset class is a group of assets that are considered to have a similar risk and return expectation. VicSuper invests in four asset classes - equities (company shares), cash, fixed interest and property.
Equities
Often called company shares or stocks, this asset class usually provides the highest average investment returns over the long term but is also subject to a higher risk of low or negative returns in the short term. We consider equities to be growth assets because they primarily provide returns in the form of capital growth.
VicSuper's equities investments are made-up of two sub-asset classes:
1. Listed equities
Listed on stock exchanges in Australia and around the world in developed and emerging markets, these investments can be purchased and sold by the public; returns are made when the market price increases and/or when dividends are paid. Investment losses are incurred when the market price of these assets decrease.
2. Private (unlisted) equity
Not listed on stock exchanges, these are private companies located in Australia and around the world. Returns are generally made when a company is listed on a stock exchange, sold to another company, or through the distribution of dividend payments.
Cash
These are investments held in bank bills and short-term deposits (for less than 12 months) with banks and other financial institutions. Interest earned provides returns which are generally reliable and consistent but lower than other asset classes.
Fixed interest
These are investments in debt securities issued by governments, semi-government agencies and corporations. Often called 'bonds', they are issued for a set amount (the principal or face value) over an agreed period at a set interest rate (the coupon). Returns are made from regular coupon payments and movement in capital value.
Property
VicSuper's property investments cover a range of assets including office buildings, shopping centres, infrastructure, forests, agricultural land, water and ecosystem services. VicSuper invests in externally managed investment trusts structured for both rental income and capital growth. On balance, we consider property to be an income asset class. Property comprises the following three sub-asset classes:
1. Commercial property
Examples include office buildings, shopping centres and industrial buildings. Returns are made from rental income and movements in property market valuations.
2. Infrastructure
Examples include airports, toll roads, and pipelines. Investment returns are made from rental income and movements in asset capital value.
3. Ecosystem services
These are the physical conditions and processes through which natural ecosystems, and the species within, sustain and fulfil human life. Ecosystem services provide clean water, liveable climates (eg via carbon cycling), pollinate crops and native vegetation, and help to fulfil cultural, spiritual and intellectual needs.
VicSuper's investment in this sub-asset class includes Future Farming Landscapes and forestry investments. Investment returns are made from revenue streams including forestry, traditional agriculture, water and ecosystem services and biodiversity payment programs such as BushTender. Returns are also made from movements in property market valuations and rental income.