Investment strategy and outlook

Investment option performance update

To 30 June 2023, AustralianSuper’s Balanced option returned 8.22% over 1 year, 8.60% per annum over 10 years and 8.12% per annum over 20 years1. Each of the PreMixed options delivered positive returns for the year primarily due to the performance of listed shares and unlisted infrastructure assets. The rebound of listed shares also benefited the performance of the Indexed Diversified option as listed markets outperformed private markets during the year.

The returns for our Australian Shares and International Shares options reflected the strong rebound in listed markets over the past year. The Diversified Fixed Interest option’s return was impacted by higher interest rates while the Cash option progressively benefited from increasing yields over the year.

Balanced option relative performance

The Balanced option has provided strong returns and outperformed its investment objectives to beat the median manager2 and the CPI +4% over the long term.

The Balanced option is positioned defensively due to the challenging investment outlook. The option has a reduced allocation to growth assets, such as Australian and international shares, while increasing the allocation to defensive assets like fixed interest. This defensive positioning has led to lower performance compared to many peer funds over the past year due to listed markets performing better than expected and the resiliency of economic growth in the face of increasing interest rates and high inflation.

Super and TTR Income investment option performance as at 30 June 2023
3 Months 1 Year 3 Years pa 5 Years pa 10 Years pa 15 Years pa 20 Years pa
PreMixed Options
High Growth 2.42% 10.48% 9.69% 7.61% 9.62% 7.47% 8.57%
Balanced 1.72% 8.22% 8.23% 6.72% 8.60% 7.11% 8.12%
Socially Aware 1.66% 7.44% 7.44% 5.45% 7.69% 7.11% 7.22%
Indexed Diversified 2.19% 11.56% 7.44% 6.44% 7.22%
Conservative Balanced 0.92% 5.64% 5.41% 5.02% 6.72% 6.09%
Stable 0.19% 3.44% 3.02% 3.49% 5.10% 5.26% 5.79%
DIY Mix Options
Australian Shares 0.94% 13.95% 12.92% 8.66% 9.69% 7.79% 9.71%
International Shares 5.74% 17.45% 9.51% 10.02% 11.87% 8.84% 8.11%
Diversified Fixed Interest -0.99% -0.53% -0.96% 0.64% 2.58% 4.37% 4.45%
Cash 0.81% 2.59% 0.99% 1.21% 1.70% 2.60% 3.19%

AustralianSuper investment returns are based on crediting rates, which are returns less investment fees and costs, transaction costs, the percentage-based administration fee deducted from returns from 1 April 2020 to 2 September 2022 and taxes. Investment returns aren’t guaranteed. Past performance isn’t a reliable indicator of future returns. Returns from equivalent options of the ARF and STA super funds are used in calculating return for periods that begin before 1 July 2006.

For TTR Income accounts, the investment return is based on the crediting rate for super (accumulation) options. From 1 April 2020 to 2 September the crediting rate includes an administration fee that is deducted from investment returns for super (accumulation) accounts. TTR Income accounts will be adjusted to refund the administration fee deducted from investment returns. All TTR Income administration fees are deducted from account balances.

Choice Income investment option performance as at 30 June 2023
3 Months 1 Year 3 Years pa 5 Years pa 10 Years pa 15 Years pa
PreMixed Options
High Growth 2.65% 11.65% 10.67% 8.39% 10.66% 8.41%
Balanced 1.91% 9.03% 8.95% 7.31% 9.48% 8.00%
Socially Aware 1.96% 8.31% 8.17% 6.03% 8.60% 7.88%
Indexed Diversified 2.40% 13.21% 8.28% 7.16% 8.27%
Conservative Balanced 1.06% 6.36% 5.99% 5.60% 7.61% 7.05%
Stable 0.32% 3.97% 3.35% 3.90% 5.77% 6.01%
DIY Mix Options
Australian Shares 1.08% 15.43% 14.40% 9.91% 10.93% 9.05%
International Shares 6.27% 19.04% 10.16% 10.76% 13.05% 9.70%
Diversified Fixed Interest -1.15% -0.67% -1.20% 0.74% 2.94% 5.02%
Cash 0.95% 3.03% 1.15% 1.42% 2.00% 2.94%

Choice Income investment returns are based on crediting rates, which are returns less investment fees and costs, transaction costs and taxes. Investment returns aren’t guaranteed. Past performance isn’t a reliable indicator of future returns.

Economic perspectives

The US economy has been more resilient than expected over the past year. The drawdown of excess savings from the COVID-19 era stimulus has cushioned households from the effects of higher interest rates. Inflation has shown some signs of easing as oil and gas prices have fallen since mid-2022 prices. This has also helped to support consumption and reduce broader cost of living pressures.

With interest rates showing signs of peaking there are expectations of slower economic growth. Our investment team sees the potential of an economic slowdown on the back of tight monetary policy. Higher interest rates and a potential contraction in credit could dampen consumption and constrain business investment, leading to a slowdown in economic activity and higher unemployment. Recent increases in jobless claims, as well as bankruptcy filings and default rates, suggest signs of a weaker economy.

AustralianSuper’s outlook and investment strategy

AustralianSuper has positioned the portfolio defensively based on the potential for slower economic growth. Historically, high inflation leads to central banks increasing interest rates, which can precede an economic downturn. Based on these conditions, we have reduced the level of growth assets, such as Australian and international shares, and increased the level of fixed interest assets in the portfolio. During a period when interest rates are peaking, fixed interest assets are expected to perform better.

Looking forward, our investment team is considering the next steps during this economic cycle. These aspects include valuation trends and how factors such as technological change, the energy transition and global geopolitics will affect long-term asset prices. As the economic cycle progresses, we expect to re-risk the portfolio when valuations for growth assets become more attractive. A material slowdown in the economy will create investment opportunities in growth asset classes, meaning that the fixed interest exposure in the portfolio will roll into growth-style investments such as listed shares, infrastructure, property or potentially credit over time.

Asset class highlights

The following highlights refer to returns for the period 1 year to 30 June 2023.

  • Australian shares provided a strong 14% return over the year. The portfolio’s concentrated positions in companies that have the potential to outperform the broader market over the long term has supported portfolio performance.
  • International shares returned over 17% for the year, boosted by a rebound in global listed share markets, especially in technology shares. Companies have continued to show strong earnings supported by consumer spending over the year. The portfolio is defensively positioned in expectation of a difficult environment that may slow earnings for companies.
  • Private equity returns of -2%, were slightly negative over the year due to updated valuations across the portfolio. The conservative positioning of the portfolio continues to focus on investments with strong potential for long-term profitability.
  • Unlisted infrastructure investments provided returns of about 10% over the year. The inflationary environment has increased the revenue streams of some assets and uplifted valuations.
  • Unlisted property had a return of about -8% as holdings in the portfolio continued to face the structural headwinds affecting office and retail properties. Our current strategy of investing in industrial parks and urban regeneration developments provide opportunities to improve future performance over the longer term.
  • Credit which includes private credit and high yield bonds returned about 6% for the year, supported by the success of the underlying assets which includes commercial real estate construction and infrastructure loans.
  • Fixed interest returns were down about 1% over the year. With central bank interest rates trending higher over the year, this continued to place downward pressure on bond prices. The fixed interest portfolio is currently positioned broadly neutral in duration, while underweighting investment-grade credit and increasing allocations to government securities. The underweight in credit hindered performance relative to benchmark as corporate credit spreads were more resilient than expected in the face of higher rates and US bank failures.
  • Cash returned about 2.5% after tax over the year, supported by progressively higher interest rates.

Cash option, money markets and bank rates

The Cash option’s investment objective is to beat the return of the Bloomberg AusBond Bank Bill Index over one year. The option has achieved this objective by outperforming its benchmark by 0.14% over the past year. The Cash option holds a diversified blend of money market instruments to meet daily liquidity for members. As the money market instruments in the Cash option mature, they can be reinvested in securities with current market yields.

The Cash option’s historic return includes the daily return of when market interest rates were lower. Interest rates offered by banks are forward-looking interest rates. During times of increasing interest rates, the historic return of the Cash option may be lower than current interest rates offered by banks or the current RBA cash rate. These bank interest rates are also pre-tax, while the Cash option (for super accounts) is a post-tax return.

Differences in the returns between money market securities and the interest rates that banks pay to savers are due to the structure of the financial market. The RBA official cash rate target is a basis for other short-term interest rates, which includes money markets. Examples of money markets include a variety of short-term funding securities including cash, repos, bank bills, FX swaps and treasury notes. These instruments provide banks and other entities with short-term funding in a highly liquid environment. For money market instruments, supply and demand impacts the rate of return on each security. As a comparison, the rates that a bank pays on deposits is dependent on the bank’s discretion to attract deposits from households and businesses. Since deposits are the main funding cost for banks, they will adjust rates paid to savers and lending rates to maintain profitability.

Performance for the period ending 30 June 2023
1 year 5 years pa 10 years pa 20 years pa
Cash option (super)1 2.59% 1.21% 1.70% 3.19%
Bloomberg AusBond Bank Bill Index adjusted for tax3 2.45% 0.99% 1.44% 2.96%

Investment costs

For the 2022-23 financial year the investment fees and costs plus transaction costs for the Balanced option were 0.56%, compared to 0.69% for the previous 2021-22 financial year. Fees and costs have several components including investment fees and costs, performance fees and transaction costs.

The primary contribution to the lower fees and costs in the 2022-23 financial year was lower transaction costs in the portfolio, largely due to a lower level of private market transaction activity. These costs can vary each year based on the level of transaction activity in the portfolio which can affect the amount incurred for items such as brokerage costs, stamp duty, due diligence costs and buy-sell spreads.

Investment fees and costs include a range of expenses incurred, which include internal and external management costs, as well as custody, derivative, audit and administration costs relating to investments. These costs can vary from year to year and have trended lower over the past five years, from 0.51% in financial year 2017-18 to 0.40% in financial year 2022-23, due to the reduced cost of internal management and benefits of scale as member assets increase.

Performance fees are paid to some external investment managers for generating outperformance over a benchmark and are based on the average performance fees paid over the last five financial years.

Balanced investment option fees and costs (super)

The table below shows the change in fees and costs associated with the Balanced investment option for super accounts over the past two financial years.

Financial year 2021-22 Financial year 2022-23
Investment fees and costs (excluding performance fees) 0.37% 0.40%
Performance fees 0.12% 0.10%
Transaction costs 0.20% 0.06%
Total investment option fees and costs 0.69% 0.56%
Administration fees and costs (current as at 1 July 2023)
  • $1 per week
  • plus 0.10% pa capped at $350 pa


Strategic asset allocation

AustralianSuper has completed the annual review of the strategic asset allocation for the 2023-24 financial year. For our investment options a benchmark mix of asset classes is set to meet each option’s objectives known as the strategic asset allocation. For the PreMixed investment options the strategic asset allocation is the starting point for our active investment process and broadly represents the risk and return profile of the portfolio we expect to hold over the long run. We also assign asset allocation ranges which are the minimum and maximum amounts we can invest in each asset class. We review the strategic asset allocation and ranges annually. To generate outperformance, we will move toward or away from the strategic asset allocation percentage depending on our outlook for the economy and investment markets.

Strategic Asset Allocation from 1 July 2023
High Growth Balanced Socially Aware Indexed Diversified Conservative Balanced Stable
Australian shares 30% 23.5% 23.5% 31.5% 16% 9%
International shares 37% 28.5% 28.5% 38.5% 20% 11%
Private equity 4.5% 4% 4% n/a 3% 1%
Unlisted infrastructure 8% 9% 9% n/a 8% 7%
Listed infrastructure 1% 1% 1% 0% 1% 0.5%
Unlisted property 7.5% 8% 8% n/a 7% 6.5%
Listed property 1.5% 1.5% 1.5% 0% 1.5% 1%
Credit 2.5% 4.5% 4.5% n/a 6% 6%
Fixed interest 5% 14% 14% 25% 26% 34%
Cash 3% 6% 6% 5% 11.5% 24%
Other assets 0% 0% 0% n/a 0% 0%
Total 100% 100% 100% 100% 100% 100%
Foreign Currency Exposure 26.5% 20.5% 20.5% 29.0% 15.0% 8.5%

Active management approach

AustralianSuper’s active management approach means that the holdings and amount invested in each asset class in the investment options can change throughout the year. The investment team analyses a range of investment factors to adjust the actual asset allocation of the investment options over the cycle. These factors include the evolution of the economic cycle, valuation signals of asset classes and slower moving secular factors that impact growth, inflation and interest rates over the long run. These factors inform our current portfolio and how it may evolve over the next three years. The three-year investment horizon enables the investment team to plan for how the portfolio will be positioned through the economic cycle, while considering portfolio risk, liquidity and deployment opportunities for each asset class.

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