Delivering positive investment returns to grow your super

Our Half Year Investment Update shows how we continue to provide great investment outcomes, giving you more value in your super.


Market rebound rewards patient investors

The financial year was a solid one for markets, rewarding patient, long-term investors.

The financial year was a tale of two halves, with the 10%-plus returns achieved for US and Australian share markets masking periods of volatility. Lows in late 2018 gave way to a big rebound in the first half of 2019, driven by lower interest rate expectations. Fixed interest markets also performed strongly as bond yields fell (bond prices rose).

The rise in both share and fixed interest markets, combined with our strategy of positioning the investment portfolio for future growth, saw the VicSuper Flexible Income Capital Stable investment option deliver a very solid return of 7.78%1 over the 2018/19 financial year.

Returns for all VicSuper Flexible Income diversified investment options were ahead of their investment objectives over all periods to 30 June 2019. See table below for selected Flexible Income (without the Transition to Retirement feature) investment option returns over various timeframes.


Our Half Year Investment Update shows how we continue to provide great investment outcomes, giving you more value in your super.


Market rebound rewards patient investors

The financial year was a solid one for markets, rewarding patient, long-term investors.

The financial year was a tale of two halves, with the 10%-plus returns achieved for US and Australian share markets masking periods of volatility. Lows in late 2018 gave way to a big rebound in the first half of 2019, driven by lower interest rate expectations. Fixed interest markets also performed strongly as bond yields fell (bond prices rose).

The rise in both share and fixed interest markets, combined with our strategy of positioning the investment portfolio for future growth, saw the VicSuper Flexible Income Capital Stable investment option deliver a very solid return of 7.78%1 over the 2018/19 financial year.

Returns for all VicSuper Flexible Income diversified investment options were ahead of their investment objectives over all periods to 30 June 2019. See table below for selected Flexible Income (without the Transition to Retirement feature) investment option returns over various timeframes.


Periods to 30 June 2019 Capital Secure
Capital Stable
Balanced
Growth
Equity Growth
1 month % 1.00 1.55 2.23 2.62 3.83
3 months %
2.21 2.88 3.56 3.90 5.05
1 year % 6.44 7.78 8.64 9.12 9.62
3 years % p.a. 5.40 7.42 9.23 10.39 13.23
5 years % p.a. 5.48 7.01 8.25 8.97 10.26
10 years % p.a. 6.26 7.91 9.39 10.32 11.81
1The Capital Stable investment option of VicSuper Flexible Income with the Transition to Retirement (TTR) feature returned 6.80% for the 2018/19 financial year, returns differ from VicSuper Flexible Income without TTR due to differences in tax. Returns for all VicSuper Flexible Income investment options are available at vicsuper.com.au/investments. Note that past performance is not a reliable indicator of future performance. The VicSuper Flexible Income Capital Stable investment option had the highest level of Flexible Income assets as at 30 June 2019.

A smoother investment journey for your super

While the strong financial year returns are pleasing, what is most important is delivering smooth, consistent investment performance for our members, rather than ‘chasing’ short-term performance by trying to time markets. Our approach is to take a long-term investment view and diversify the investment portfolio appropriately.

Investing across asset classes in our diversified investment options (e.g. the VicSuper Flexible Income Capital Stable investment option) allows us to capture returns from a broad range of asset classes while managing risk effectively. Taking a long-term view means we focus on investment fundamentals - which drive long-term returns - rather than getting caught up in short-term trends and ‘market noise.’

You can see in the chart below that the VicSuper Flexible Income Capital Stable investment option has delivered a smoother pattern of returns (green line) over the last financial year compared to the volatile, v-shaped performance of Australian and US share markets.


VicSuper flexible income Capital Stable Investment option

Note that past performance is not a reliable indicator of future performance. 



True-to-label investment

Another key part of how we invest is that our approach is ‘true to label’—that is, our investment approach is based on ensuring that the investment strategy for each option is aligned with its specific return and risk objectives. For our Capital Stable investment option, for example, we invest in a higher proportion of defensive assets (like bonds or cash) than riskier asset classes (like shares)—which aligns with investors’ lower risk tolerance for this investment option.

Our aligned, risk-aware and opportunistic approach helped us deliver solid, consistent returns for our members in our diversified options even in the face of volatile and unpredictable markets, which we’ve certainly seen over the last 12 months.


Growth vs defensive allocations for selected VicSuper Flexible income investment options


Our aligned, risk-aware and opportunistic approach helped us deliver solid, consistent returns for our members in our diversified options even in the face of volatile and unpredictable markets, which we’ve certainly seen over the last 12 months.



Enhancing our portfolio and investing responsibly for better member outcomes

Last financial year we enhanced the investment portfolio by: 1) diversifying our Real Assets investments; 2) deepening our responsible investment and engagement; and 3) adjusting the portfolio’s long-term, strategic asset allocation.

Investing for resilience: Real Assets

VicSuper has invested $1.3 billion in the last two years in real assets. Real Assets include high quality infrastructure, property, and timber & agriculture assets - for example:

  • Infrastructure assets: Melbourne Airport, Southern Cross Station, Ross River Solar Farm (solar power, Townsville), Finerge Wind Farm (wind power, Portugal) and Wheelabrator (energy-from-waste, US/UK).

  • Property assets: Quay Quarter Tower (premium office, Sydney), 567 Collins Street (premium office, Melbourne) and Southern Cross Station (key train hub, Melbourne) and The Cube (premium office, Berlin, Germany).

  • Agriculture assets: Kerang (Victoria) is one of Australia's most vital food-producing regions. Our investment in sustainable farming focuses on improved crop yield and water use solutions for agriculture.


Real assets

Periods to 30 June 2019 Capital Secure
Capital Stable
Balanced
Growth
Equity Growth
1 month % 1.00 1.55 2.23 2.62 3.83
3 months %
2.21 2.88 3.56 3.90 5.05
1 year % 6.44 7.78 8.64 9.12 9.62
3 years % p.a. 5.40 7.42 9.23 10.39 13.23
5 years % p.a. 5.48 7.01 8.25 8.97 10.26
10 years % p.a. 6.26 7.91 9.39 10.32 11.81
1The Capital Stable investment option of VicSuper Flexible Income with the Transition to Retirement (TTR) feature returned 6.80% for the 2018/19 financial year, returns differ from VicSuper Flexible Income without TTR due to differences in tax. Returns for all VicSuper Flexible Income investment options are available at vicsuper.com.au/investments. Note that past performance is not a reliable indicator of future performance. The VicSuper Flexible Income Capital Stable investment option had the highest level of Flexible Income assets as at 30 June 2019.

A smoother investment journey for your super

While the strong financial year returns are pleasing, what is most important is delivering smooth, consistent investment performance for our members, rather than ‘chasing’ short-term performance by trying to time markets. Our approach is to take a long-term investment view and diversify the investment portfolio appropriately.

Investing across asset classes in our diversified investment options (e.g. the VicSuper Flexible Income Capital Stable investment option) allows us to capture returns from a broad range of asset classes while managing risk effectively. Taking a long-term view means we focus on investment fundamentals - which drive long-term returns - rather than getting caught up in short-term trends and ‘market noise.’

You can see in the chart below that the VicSuper Flexible Income Capital Stable investment option has delivered a smoother pattern of returns (green line) over the last financial year compared to the volatile, v-shaped performance of Australian and US share markets.


VicSuper flexible income Capital Stable Investment option

Note that past performance is not a reliable indicator of future performance. 



True-to-label investment

Another key part of how we invest is that our approach is ‘true to label’—that is, our investment approach is based on ensuring that the investment strategy for each option is aligned with its specific return and risk objectives. For our Capital Stable investment option, for example, we invest in a higher proportion of defensive assets (like bonds or cash) than riskier asset classes (like shares)—which aligns with investors’ lower risk tolerance for this investment option.

Our aligned, risk-aware and opportunistic approach helped us deliver solid, consistent returns for our members in our diversified options even in the face of volatile and unpredictable markets, which we’ve certainly seen over the last 12 months.


Growth vs defensive allocations for selected VicSuper Flexible income investment options


Our aligned, risk-aware and opportunistic approach helped us deliver solid, consistent returns for our members in our diversified options even in the face of volatile and unpredictable markets, which we’ve certainly seen over the last 12 months.



Enhancing our portfolio and investing responsibly for better member outcomes

Last financial year we enhanced the investment portfolio by: 1) diversifying our Real Assets investments; 2) deepening our responsible investment and engagement; and 3) adjusting the portfolio’s long-term, strategic asset allocation.

Investing for resilience: Real Assets

VicSuper has invested $1.3 billion in the last two years in real assets. Real Assets include high quality infrastructure, property, and timber & agriculture assets - for example:

  • Infrastructure assets: Melbourne Airport, Southern Cross Station, Ross River Solar Farm (solar power, Townsville), Finerge Wind Farm (wind power, Portugal) and Wheelabrator (energy-from-waste, US/UK).

  • Property assets: Quay Quarter Tower (premium office, Sydney), 567 Collins Street (premium office, Melbourne) and Southern Cross Station (key train hub, Melbourne) and The Cube (premium office, Berlin, Germany).

  • Agriculture assets: Kerang (Victoria) is one of Australia's most vital food-producing regions. Our investment in sustainable farming focuses on improved crop yield and water use solutions for agriculture.


Real assets

Responsible investment, deeper engagement

Responsible investment is an integral part of our overall investment approach. It’s about long-term thinking—the time horizon over which our members’ retirement savings are invested. Responsible investing is not only consistent with our objective of optimising members’ retirement savings and incomes, we believe that it also positively contributes to the world our members live and retire in.Responsible Investment

Our approach to responsible investment is based on four pillars: 1) environmental, social and governance (ESG) integration 2) active ownership 3) investing in sustainable outcomes, and 4) member choice. These underpin our responsible investment beliefs, policies and procedures.

Investing in sustainable outcomes

We have set ourselves a goal of investing $3 billion in sustainable outcomes by mid-2020. We are already substantially on our way to achieving this goal with current investments and allocations including:

  • Invest in Victoria - $100m commitment to private markets focused on creating jobs and regional development in Victoria, tackling big issues and improving affordability & access to essentials.

  • Low carbon investment - $1 billion in an international equities strategy that aims to deliver a 70% reduction in greenhouse gas emissions against its benchmark.

  • Renewable energy - $110m in a renewable energy infrastructure including Wheelabrator waste-to-energy (US/UK), Finerge wind power (Portugal), and Ross River Solar Farm (Townsville).

  • Greener property - $685m in ‘greener’ property through four leading property managers including a significant number of Melbourne and Sydney’s premium office buildings given high occupancy and tenant retention.

Top rating for responsible investing in 2019

VicSuper holds an A+ rating for Responsible Investment Strategy and Governance from the Principles for Responsible Investment (PRI). PRI is an international independent body and the world’s leading advocate for responsible investment.

Our top PRI rating recognises VicSuper’s continued progress in integrating responsible investment principles within the mainstream investment portfolio. In the 2019 PRI Annual Benchmark, we also further improved our ratings for Listed Equity and Fixed Income and were ahead of our peer group median across all categories.

Read our PRI Transparency Report.

PRI



Recent changes in investment options

Each year we review our investment options to ensure that our underlying investment strategies and investment objectives remain appropriate and well-placed to deliver solid, sustainable outcomes for members.

Further to the review undertaken in the first half of 2019, a number of changes were applied to our investment options from 1 July 2019. These changes (listed below) were based on expectations of a more cautious outlook going forward:

  • updates to the investment return objectives for a number of investment options
  • changes to the risk objectives for the Capital Secure and Capital Stable investment options
  • minor adjustments to the strategic asset allocation of several investment options
  • minor adjustments to the allocations to growth and defensive assets for some investment options.

You can read more about the changes in investment options in your half-yearly Benefit Statement (in the ‘Other important information you should know’ section).


Investment outlook: caution required

Expectations of further US interest rate cuts have been one of the main drivers of the rebound in markets over the first half of 2019. Our belief, however, is that the current market highs do not seem to reflect the underlying economic conditions given a) our medium-term view that economies will slow further, and b) that markets face a number of longer-term, structural risks.

We believe markets have underestimated the potential impact of these structural risks2, which cover five key areas: 1) economic, e.g. the risks of fiscal crisis or asset bubbles; 2) environmental, e.g. risks of extreme weather events or failure of climate change; 3) geopolitical, e.g. risks of failure of national, regional or global governance or terrorist attacks; 4) societal, e.g. risks of water crisis or large scale voluntary migration; and 5) technological, e.g. risks of data fraud/theft or cyber-attacks.

These long-term risks vary in terms of their likelihood and impact on our investment portfolio, and in fact, some of them represent investment opportunities. We manage environmental risk, for example, by making investments in sustainable outcomes that can both reduce the environmental risk to our portfolio, as well as capture new investment opportunities.

While the strong returns in most of our investment options are good news for our members, we believe it will be more difficult to achieve high investment returns over the next few years. With that said, we believe our portfolio is well placed to weather periods of market volatility as well as to capture any upside, and thus is well placed to deliver solid and consistent returns over the long term.

2Source: World Economic Forum; Global Risks Perception Survey 2018-19


Talk to VicSuper about how your retirement savings are invested

It can help to talk to someone about your super - even if you just want to find out more about your investment options and how we’re investing your money. And remember at VicSuper, you get superannuation and retirement advice at no additional cost in most cases.

For more information about our advice services, go to Help and advice at vicsuper.com.au

For more information about how we deliver different sources of investment returns for our members, go to vicsuper.com.au/investments




Important information
This document has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions. VicSuper Pty Ltd ABN 69 087 619 412, AFSL 237333, Trustee of Victorian Superannuation Fund ABN 85 977 964 496

Responsible investment, deeper engagement

Responsible investment is an integral part of our overall investment approach. It’s about long-term thinking—the time horizon over which our members’ retirement savings are invested. Responsible investing is not only consistent with our objective of optimising members’ retirement savings and incomes, we believe that it also positively contributes to the world our members live and retire in.Responsible Investment

Our approach to responsible investment is based on four pillars: 1) environmental, social and governance (ESG) integration 2) active ownership 3) investing in sustainable outcomes, and 4) member choice. These underpin our responsible investment beliefs, policies and procedures.

Investing in sustainable outcomes

We have set ourselves a goal of investing $3 billion in sustainable outcomes by mid-2020. We are already substantially on our way to achieving this goal with current investments and allocations including:

  • Invest in Victoria - $100m commitment to private markets focused on creating jobs and regional development in Victoria, tackling big issues and improving affordability & access to essentials.

  • Low carbon investment - $1 billion in an international equities strategy that aims to deliver a 70% reduction in greenhouse gas emissions against its benchmark.

  • Renewable energy - $110m in a renewable energy infrastructure including Wheelabrator waste-to-energy (US/UK), Finerge wind power (Portugal), and Ross River Solar Farm (Townsville).

  • Greener property - $685m in ‘greener’ property through four leading property managers including a significant number of Melbourne and Sydney’s premium office buildings given high occupancy and tenant retention.

Top rating for responsible investing in 2019

VicSuper holds an A+ rating for Responsible Investment Strategy and Governance from the Principles for Responsible Investment (PRI). PRI is an international independent body and the world’s leading advocate for responsible investment.

Our top PRI rating recognises VicSuper’s continued progress in integrating responsible investment principles within the mainstream investment portfolio. In the 2019 PRI Annual Benchmark, we also further improved our ratings for Listed Equity and Fixed Income and were ahead of our peer group median across all categories.

Read our PRI Transparency Report.

PRI



Recent changes in investment options

Each year we review our investment options to ensure that our underlying investment strategies and investment objectives remain appropriate and well-placed to deliver solid, sustainable outcomes for members.

Further to the review undertaken in the first half of 2019, a number of changes were applied to our investment options from 1 July 2019. These changes (listed below) were based on expectations of a more cautious outlook going forward:

  • updates to the investment return objectives for a number of investment options
  • changes to the risk objectives for the Capital Secure and Capital Stable investment options
  • minor adjustments to the strategic asset allocation of several investment options
  • minor adjustments to the allocations to growth and defensive assets for some investment options.

You can read more about the changes in investment options in your half-yearly Benefit Statement (in the ‘Other important information you should know’ section).


Investment outlook: caution required

Expectations of further US interest rate cuts have been one of the main drivers of the rebound in markets over the first half of 2019. Our belief, however, is that the current market highs do not seem to reflect the underlying economic conditions given a) our medium-term view that economies will slow further, and b) that markets face a number of longer-term, structural risks.

We believe markets have underestimated the potential impact of these structural risks2, which cover five key areas: 1) economic, e.g. the risks of fiscal crisis or asset bubbles; 2) environmental, e.g. risks of extreme weather events or failure of climate change; 3) geopolitical, e.g. risks of failure of national, regional or global governance or terrorist attacks; 4) societal, e.g. risks of water crisis or large scale voluntary migration; and 5) technological, e.g. risks of data fraud/theft or cyber-attacks.

These long-term risks vary in terms of their likelihood and impact on our investment portfolio, and in fact, some of them represent investment opportunities. We manage environmental risk, for example, by making investments in sustainable outcomes that can both reduce the environmental risk to our portfolio, as well as capture new investment opportunities.

While the strong returns in most of our investment options are good news for our members, we believe it will be more difficult to achieve high investment returns over the next few years. With that said, we believe our portfolio is well placed to weather periods of market volatility as well as to capture any upside, and thus is well placed to deliver solid and consistent returns over the long term.

2Source: World Economic Forum; Global Risks Perception Survey 2018-19


Talk to VicSuper about how your retirement savings are invested

It can help to talk to someone about your super - even if you just want to find out more about your investment options and how we’re investing your money. And remember at VicSuper, you get superannuation and retirement advice at no additional cost in most cases.

For more information about our advice services, go to Help and advice at vicsuper.com.au

For more information about how we deliver different sources of investment returns for our members, go to vicsuper.com.au/investments




Important information
This document has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions. VicSuper Pty Ltd ABN 69 087 619 412, AFSL 237333, Trustee of Victorian Superannuation Fund ABN 85 977 964 496