Choosing the right investment option

Good evening and welcome to our webinar Strategic Investment Maximising Your Super. This session offers a behind the scenes look at how AustralianSuper's investment strategies have delivered long term value through active management, scale and innovation. So whether you're planning for retirement or optimising your current strategy, this webinar can help provide the clarity and confidence you need to stay ahead.

My name is Michelle Kelada and I'm an Education Manager at AustralianSuper and it's my role to help you understand how your super works. I'll also shortly be joined by Sam Weaner who is my co-host this evening and he's the Manager of Investment Communications.

Before we do get started, AustralianSuper does acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to Elders past present and extend that respect to all Aboriginal and Torres Strait Islander people.

Our presentation today may include general financial advice which doesn't take into account your personal objectives, financial situation or needs. So before making a decision, do consider if the information is right for you and read the relevant product disclosure Statement and target market determination that is available on the AustralianSuper website.

So in this session, we'll talk a little bit about investing with AustralianSuper with some insights from Sam. We'll also talk a little bit about what to consider when investing and exploring some of the options that are available to you through AustralianSuper. And then finally, we'll tie it all together by looking at some of the ways you can access help and advice from AustralianSuper. I'm now going to introduce Sam, who, as I mentioned, is the Investment Communications Manager.

Sam, can you tell us a little bit about your role and how you help members at AustralianSuper? Thank you, Michelle. Well, I've worked in the investment industry for over 25 years and tonight I'm pleased to be able to share some of those insights with you. A key part of my role at AustralianSuper is to provide updates to members on the strategies and the performance of our investment options. And I'm pleased to be able to share some of that knowledge with you this evening.

Thanks, Sam. So can you tell us a little bit more about what you do at AustralianSuper and the goal of the investment team?

Sure. The, when we look at it, the, the number one goal for the investment team is to choose investments that can put you in the best financial position in retirement. And we do this in, two main areas. And the things we'll talk about a little bit are how we expand the investment team to look for an additional investment opportunities as well as how we invest in Australia and global markets around the world. So the first part is how we expand our team globally. So this slide shows how the investment team is divided up into different portfolio groups. So you'll see that we have growth assets in the portfolio, mid risk assets, which are kind of in the middle of growth and defensive and defensive assets on the right hand side there. So each part of the team will invest in that dedicated asset class, whether it's be Australian shares, real assets like property and infrastructure or even fixed interest investments. And the team is made up of staff from around the world. So we have offices in Australia, Asia, Europe as well as North America and we have 400 people investing on your behalf. And this includes 70 investment staff in our London office as well as 40 investment staff in our New York office. And effectively the benefit of having staff in all these locations around the world is that we get access to local knowledge and investment opportunities that we wouldn't get from just sitting here in Australia.

So some recent examples is we've also been able to access the global talent pool in London and New York to basically expand the portfolio management capabilities that we have. So we've made some senior appointments in our London office to manage our international shares portfolio. And we've also added additional staff in our London and New York offices to invest in assets that's like private equity property infrastructure as well as credit. So, these appointments enable AustralianSuper to invest in new opportunities around the world. The second part of this is investing in both Australia and global markets. And this map shows how much we have invested in the whole portfolio in Australia as well as different regions around the world. So currently we have about 45% of the portfolio or over $170 billion in assets in Australia. And this benefits from the growth of the Austrian economy, supports local industries as well as infrastructure investments. So we want to be able to support the Australian economy, which is very closely related to their own jobs that we have here. But we also look internationally. So we look around regions around the world to help add diversity to the portfolio as well as widen the opportunity set of potential investments. So this can help with both return generation as well as risk reduction in the portfolio. So overall, the team is focused on getting access to assets that can add diversity to your accounts as well as benefit members returns.

Thanks Sam. So you've mentioned the number one goal for the investment team is to help members by choosing investments to improve their retirement. Can you explain how this applies to the different investment options that are available for members to invest in at AustralianSuper?

Sure. And this is a great graphic which shows all the different investment options that you have access to at AustralianSuper. And this includes the DIY mixed options like cash, diversified, fixed interest, Australian shares and international shares, as well as the different premixed options, diversified options, which you see in the middle of the chart here. And this maps out the risk reward characteristics of the different options that you can invest in. So effectively, cash is considered a lower risk option, but also has the lower potential reward. And then you move up to more, aggressive options like Australian shares, international shares. And in the middle, you have those diversified options which balance out the risks. They provide growth potential, but they also help minimise the downside risk, especially during market downturns. So it's that benefit of a mix of diversification as well as getting some growth opportunities. The next part of this, we'll talk a little bit about the building blocks of what makes up these portfolios and how we invest as well. Thanks, Sam. So we've had a bit of a look at where these options fit on the potential return and expected risk scale. Can you provide more detail on how these options are made up, all these building blocks that you've spoken about?

Definitely. So when you look at this, you look at especially the diversified options, the premixed options, these are the different asset classes that make up many of those options. And we often think of those as the building blocks or the different asset classes. And you can break them down between growth and defensive characteristics much like we saw earlier in those different parts of the portfolio. So cash being the most conservative or, or listed shares and private equity being more growth oriented. So effectively we look at you want growth oriented securities in your portfolio if you want to gain value over the long term or increase your returns over the long term. But they also tend to have some more risk as well. So there's risk in the short term that you could have a market downturn or that you could lose money in the short term. But over the long term, you expect some of those risks to weigh out.

Whereas the defensive assets, they don't fluctuate as much in value, but they also have less opportunities to grow your super over time. The credit and real assets in the middle, they have that mix of both growth and defensive characteristics. So we often think of these as unlisted assets and unlisted assets have some unique characteristics where they have the potential to outperform things like listed shares over time. So effectively there's a big benefit to each of these asset classes.

To dig a little bit deeper, let's look at something like listed shares. So in our Australian shares portfolio, we invest over $100 billion on your behalf in the Australian market. And this is invested in Australian companies. So our portfolio managers in the Australian equity team, they'll do fundamental research that looks for well managed companies that have competitive advantages. And we also want to see companies that have quality management because we believe that gives them the opportunity to outperform the broader market over time. And this is something that's been very successful in our Australian share strategy over the last 10 years.

To give you a bit more detail about some of the assets we have in the portfolio, these are some examples of unlisted assets that we have in the domestic market. I also show some examples that we have in the international market as well. So we've talked a little bit about unlisted assets, how they have some unique characteristics, but they tend to be less liquid and more complex than investing in listed shares. And that's where we use our internal expertise to be able to select these investments on your behalf. These characteristics also give the potential that these asset classes or these assets will do well over the long term.

So one example is the Perth Airport. So this is an asset we've had in a portfolio for over 10 years and it's done very well for members from a return perspective. A recent example as well is that in late 2024, we increased our stake in Perth Airport. The Perth Airport announced a multi billion dollar expansion programme and we were able to support this. So as a part of owning an asset is that we work with management to support them when they need capital to expand. So we saw this as a great asset for the portfolio. So, we basically want to work with, with the management to support their expansion goals as well as assist growth in the portfolio itself.

Another example of an asset we have in the portfolio is Morebank Logistics Park. And this is just West of Sydney and it's an emerging inland port that we've invested in, which is the 243 hectare industrial property and it's one of Australia's largest intermodal logistics precincts. So what we, the reason we wanted to invest in this is this is a major hub and a connection point for the railroad and logistical services and it connects Port Botany to the Interstate rail network. So it has capacity to build up to 850,000 square feet of office warehouse space and it's basically a great opportunity for the portfolio to help with that transportation and logistics services in Australia.

On the next slide, we'll see some examples of some international assets and these two are King's Cross as well as Vantage Data Centres. So King's Cross is an is an example of a significant urban transformation in London. And this is an asset that we've had in the portfolio since 2015 and it includes a development in retail, office as well as residential spaces. So it's definitely worth a trip when you when you visit London to go see how this has been redeveloped in this area. Another example is Vantage Data Centres. And this is where we see the expansion of digitization and the demand for data as a theme that brings investment opportunities for members.

So some assets we've invested in the portfolio are tower networks as well as data centres and Vantage data centre, which is pictured here. It's a fast growing data platform that supports the need for cloud computing, big data and AI. And it delivers data storage space for cooling and power at scale for some of the leading businesses around the world. And this includes Microsoft, Amazon and Google. So these data centres store cloud workloads and how's the computing power needed for businesses. And, and these are just a few examples of the unlisted assets that we hold in the portfolio.

Thanks, Sam for those insights. Could you give us some bit of insight into the investment team's approach to research and areas that they're focusing on?

So, another interesting part of the investment portfolio is we have those different building blocks and we have teams that manage the building blocks, but we also have an asset allocation team that has economists that research market events as well as the outlook for different markets. So they're focused on looking at the valuation of securities as well as the outlook for the economy as well as different asset classes. So a key part of this is understanding how economic market cycles work. So you'll see that a trend of market cycles that go through recovery, expansion, slow down and even recession. And a big part of this is different asset classes perform differently in each of these market cycles. So part of it is determining what market cycle are we in now as well as what are the prospects in the next three to five years.

So one example is during economic recoveries, asset classes like listed shares may do really well, whereas during recessions, asset classes like cash or fixed interest may do comparatively well. So that is a challenging part that it's very difficult to time these movements accurately. So we seek to build portfolios that weather the ups and downs of the economy and investment markets. Another part is we do have an active management approach. So we want to adjust the amount that we have invested in each asset class and this can change throughout the year. So we look at a number of different factors including the economic cycle, we look at valuation signals, we look at investment themes, we look at inflation as well as interest rates and how they affect the different asset classes.

To dig a little deeper, this slide shows the different themes that our investment team looks at and we research these themes that can affect the value of the assets over the long term. These are themes that can affect the global growth, the employment as well as consumer behaviour, and it leads into the profitability and cash flows for different assets. We also look at the interconnectivity of these themes as well.

For example, if we link together digital and decarbonization. So we think of the strong demand that we have for digital assets like data centres and tower networks. This also creates demand for more energy. So it links together with the decarbonization theme because investments like data centres will need energy generation and then we'll and basically combining those two to think of how we're going to power them is pretty important for the portfolio. Overall, we expect more economic volatility. This could mean a higher equilibrium for inflation and interest rates as well as increased fiscal and trade policy uncertainty. And this leads into the output of our asset allocation approach on our next slide.

Sam, you've spoken about the asset classes being the building blocks of the portfolio. How does the fund choose which of these building blocks to use and in what quantities?

So this is, this is a pretty interesting chart. It looks at the Balanced option. We often start with the Balanced option because that's where a large amount of our members are invested. And this is looking at the asset classes over time. So the best way to look at this chart is, if you see that the very top part of it, it has the growth assets like listed shares as well as private equity. And at the bottom of the chart has fixed interest and cash. If we feel that the global growth is going to slow down like we did back in 2018 and 2019 as well as even in the 2022 and 2023, that's where you'll see the green bit or the fixed interest amount increase over time. And we took a little bit of growth off the table. We see the amount of listed assets shrink basically to prepare for a potential economic slowdown.

Whereas if we think more optimistically about the markets, that's where we'll add a little bit more growth back into the portfolio by expanding the amount that we have in listed shares like Australian shares and international shares. Currently we're in a we're in a pro-growth position. We actually believe that global growth will continue to thrive even though there are some factors that are slowing down overall growth. So right now in the portfolio, we are more optimistic that GDP growth will continue to expand over time even if it is at a slower rate.

Thanks, Sam. Appreciate the insights you provided on how active management and strategic asset allocation have driven long term performance and resilience. So the common question that we often get is where is my super invested or how can I find out where my super is invested?

So to dive a little bit deeper, members can see examples of what we invest in in the portfolio. You can do this on our website under investments, what we invest in, where we provide details of what is in the portfolio. This can give you a comprehensive look at where your super is invested, and you can even do searches for individual investments if you are curious of how much is invested in a specific holding.

From talking to members, I know that many raise concerns about investment risks, such as being worried their money might run out or how the recent market volatility has been impacting their super balance. Can I ask you, Sam, to explain some of the risks that members should consider when they're thinking about investing?

Definitely. So there's three main ones that we can think about is inflation risk or the rising cost of goods and services over time, market volatility, which is that changing the value of your investments as well as longevity risk or the concern that your savings could run out.

And to start to do a deeper dive on this, we'll start off with inflation risk. And I still remember back when I went to a party with relatives when I was 30 years old and one of the relatives I met retired the year I was born. So for 30 years they would have been in retirement. And I actually started to think about when I was growing up, how much a movie ticket cost or what was the cost of food when I was growing up compared to what it was when I was 30 years old. So, to think that somebody could be retired for 30 years was pretty amazing at the time. Even thinking of even in Australia, the cost of a movie ticket was about half the half the cost 20 years ago as it is today. So, inflation is often in the forefront of our minds, especially after the last few years when we've seen the increasing prices of our grocery bills, especially since COVID. So during retirement, it's one thing to think about is to invest in a way that your investment account keeps up with the rising cost of inflation. So you think if you look at this chart effectively over 30 years, even at 2.5% inflation, the cost of a cup of coffee could be double that of what it is today. So it's a pretty important part to invest in assets that have that potential to, to keep up with inflation.

The one, this is one reason why when we look at those different investments, we saw cash as a relatively low risk investment, but investing in cash might mean that you don't keep up with the rising costs of inflation over time, especially if the cash rate doesn't outpace inflation.

On the next slide, we'll take a look at market volatility and how that could affect your account. So oftentimes we think of volatility as that basically that chance of losing money. And what I've put together here is a chart that shows the returns of the balanced option and the returns of the Australian shares option over different time periods. So on the left hand side, we see the balanced option, which is over a one year. What was the best and the worst return since 2007 in a in a one year. Then over a five year. If you look at rolling five year periods, what was the best and worst return over five years and then the same thing over 10 years. And what we saw in the balanced option is that in in a given year, it could have made 20% or it could have lost 20%. So those big extremes were actually during the global financial crisis when there was a big market sell off. So even though it's a diversified option, there is the risk that it could lose money, but there's also the potential to increase your value over time as well.

The same thing can happen in Australian shares. So Australian shares you're investing in one asset class in a certain part of the market. And that's where we saw an extreme where during the global financial crisis, you could, you could actually have lost 40% of your money in that account or when it recovered from the global financial crisis, there was an upswing of 40%. You do see those that risk play out over time that if you stay invested, the chances of losing money over longer periods of time diminish. However, there is still a risk of investing. So, the one aspect we look at it in a premixed option like the balanced option is to invest in a diversified set of assets that gives you that growth opportunity while also smoothing your journey as well. So, when you think of market volatility and risk, there's upsides to it as well as the downside.

And, looking at the last risk, there is a, common concern when you retire of basically running out of money. So, this is effectively what's called longevity risk. And if, if the longer you live, the more susceptible you are to longevity risk. And that's the one aspect is you might retire at, at 60, 65, but you'll, you'll need your assets for a relatively long period of time after you retire. The other part of longevity risk too is that the aspect that of underspending your money, you may have a reasonable size in your super amount saved away as well as using the using the pension. You want to be able to use these, you've spent your life saving that money, you want to be able to use that money effectively as well. So you should be able to enjoy the assets and make sure plan for it during retirement. So overall, it's what you can do to address this is to consider your situation as well as what investment options you should invest in.

So we have a range of options available to members from diversified portfolios through to member direct. However, I get many questions from members on how to decide what option is right for them. There are three main things to consider when making a choice on what investment might be right for you. That is your investment time frame, how hands on you want to be with your investments, as well as your risk appetite. Sam, can you explain why it's important to know your investment time frame? You've spoken a little bit about this already.

This goes hand in hand with that longevity risk that you look at that, concept that you, retired 65 or 70, you may live for many more decades and be able to use your assets over that time period. So retirement isn't a single destination. It's not 60 or 65, it's an expended extended period of time. So, the main part is that the concept of planning for it and making sure that your investments will keep up with inflation as well as support your needs throughout your life. As well as your investment time frame. You may also want to consider how hands on you want to be. Choosing the right investment can impact how much your savings grow and then how long they might last. So before making your choice, you need to know how much direct control you want to have over your investments.

At AustralianSuper you have a variety of options to choose from, so let's have a little bit of a look at what's available. We have our premixed options. Sam spoken a little bit about the balanced option, which is just one of our premixed options at AustralianSuper and this is considered to have a low hands on level.

The reason for this is that our investment team work hard to build these portfolios for you on your behalf so that you can select one that is appropriate for your risk tolerance.

Then we've got our DIY mix options. These are considered to have a medium hands on level and this is where you get to become a little bit more hands on with how your super is invested by choosing which asset classes build up your pool of investments inside of your super. You may also decide to exclude certain asset classes from your pool of investments.

Then we've got our member direct option. This is for those members that want to have a high hands on level with how their super is invested and it puts you in the driver's seat when it comes to stock selection and building your pool of investment.

Importantly, you can have both part of your super in the premixed or DIY options as well as a portion invested in Member Direct if you choose to.

So let's have a closer look at Member Direct. Member Direct offers you more control and choice over the investments of your super or retirement income. Through the Member Direct Investment option, you can invest in shares, exchange traded funds or ETFs and listed investment companies, as well as term deposits and cash. Through an easy to use online platform, you also get access to things like real time trading, market information, independent research and investment tools to help you make informed decisions around your investments and help you to manage your portfolio.

Member Direct investment options suits members who want to be actively involved in managing the investments inside of their superannuation. There are a number of different features and some of those are listed on the screen here. You do get access to custom a customised home page with market information that's relevant to you, the ability to participate in available dividend reinvestment plans and independent company research from third party specialists and a number of other features that we've highlighted.

Within the online platform there are three key sections. There are Cover Stories, which is a news feed where front page news and research are kept. The news feed contains articles that you're able to customise from AustralianSuper, UBS Research and Morningstar Australasia. Then you've got the Invest section. So this is where you can select where you want to invest and initiate cash transfers. We've also got Explore and in this section you can discover and read content related to investments and create your own customised information. There are also a number of reports that you can generate within the online platform, including capital gains reporting, cash transaction reports, fees and expense reports and a number of others there as well.

Final question, Sam, on risk, what should members consider when deciding how much risk they are comfortable with?

You know, we often hear about the, the concept of what you're, what are you comfortable with or what keeps you up at night? And we look at this in a couple different ways of emotional comfort, financial comfort leading to your, your total risk comfort. So emotional comfort is definitely how confident do you feel during times of market volatility? Do you feel anxious when there's a market sell off or are you content that there's the markets could potentially recover? Financial comfort is more about your financial position that like, do you have enough assets that create a, a nice comfortable buffer for you, that you, you're not too concerned about meeting your daily cash flow needs effectively. When you pull this all together to your total risk comfort, it's, it's investing in different options and setting forward a financial plan that help meet your emotional and financial comfort levels. So, and there's a variety of different tools that you can use to help address your comfort levels.

Thanks, Sam. So some next steps that you might want to consider taking on a back of attending this evening session are assessing your own risk tolerance. We have a great tool on our website, the Risk Profiler tool, where you can answer a series of questions which can give you an idea of what your risk tolerance might be and what type of investor you are suited to. You may also want to consider starting to define your investment horizon, that is aligning your investments with your timeline for needing those funds.

So as Sam spoke about starting to think about how long the funds inside your super are or could be invested for into the future. You may also want to consider seeking some advice. So starting to learn about the options available to seek some more personalised advice, which I'll talk about a little bit more in a moment.

So AustralianSuper provides you with access to a number of advice options depending on your needs, and you can speak with an advice team member over the phone for simple personal advice. This covers topics relating to your AustralianSuper account, such as your investment options. So on the back of this session, if you are unsure about what option might be available to you, you can book an appointment over the phone and get that advice with a financial planner as it pertains to your situation. You can also receive advice on making contributions as well as insurance and retirement income options for your AustralianSuper account.

For those that have more comprehensive advice needs, we do also have financial planners that you can meet with at AustralianSuper that have where you have the initial appointment. There is no fee for that initial appointment and no obligation and after that appointment the financial planner will let you know what the fee would be if you did decide to proceed with getting that comprehensive advice in writing.

There are also a number of other tools available on our website and calculators where you can project what your super balance might be at a particular point in the future.

And myself and the rest of the education team run a number a series of webinars that you can find on our website covering a number of different topics.

We are running close to the end of time and we have seen a number of questions coming through in the Q&A as we've been going through this evening's session.

Sam, there have been a number of questions and a few that I might pose to you while we're in the final moments of tonight's session. I've got a question here. ‘If I'm retiring in about 12 months, what is the best and safest way to protect my money? The market looks overvalued and politically unstable.’

It's definitely an interesting aspect that we do often look at the day to day or the current market conditions as, as it applies to our accounts. And that flows into a little bit of that short term risk that we talked about earlier that you can have some variability in your account balance in the near term. And the biggest aspect is to invest in a way that you're comfortable with that there are some out of your assets that might be considered long term that you need to let grow for 10 or 20 years or maybe even 30 years. But there's also that aspect of money that you need in the next 6 months, year or even 2 years and making sure that's protected in case there are some short term downturns. And that goes back to the advice options that you offer that if you're uncertain about how to position your portfolio using some of those services can help make you feel more comfortable.

Thanks, Sam. Another question we've got here, which may be relevant to those that might perhaps be thinking of or moving into the pension phase of super is a question around why do returns in super accounts or accumulation accounts vary to those in an account based pension. And this is something you'll definitely see. So under our performance page or even online, you'll see different parts where you see different performance numbers for the Balanced options. So we have a Balanced option for super accounts and we have a balanced option for choice income accounts. And the main difference is that in superannuation during the accumulation phase, tax on earnings is taxed at 15% or 10% for some capital gains. Whereas in a pension there's a lot of those aspects are tax free. So, you should see a higher return during upward markets in the pension accounts because they have lower tax than the superannuation accounts. So depending on your situation, as you're getting close to retirement or in retirement, it could be advantageous for you to transfer to a pension account, which would give you higher returns because of the tax free status.

Thanks, Sam. There's a number of questions about some of the decisions AustralianSuper is making around how they invest members money. And one of those here is whether AustralianSuper invests in cryptocurrency.

It's definitely a frequent question. We see here that one a lot. And the interesting thing about how we analyse different assets as we look at what's the potential of their value and what's the potential for the return over time. And the one challenge with cryptocurrency is that there's no income off of it and there's no way to value what that asset will be worth a year from now. So from a direct investment perspective, we don't invest directly in the cryptocurrency. However, what we do see some advantages is the blockchain technology. So we look at blockchain and how different companies are using it. There are some advantages that the companies use. So we do look at supporting the technology field and how companies are using blockchain technology, but not a direct investment in the cryptocurrency.

And another one on the same theme, Sam, do we invest in gold? Gold is actually very similar as a commodity that gold itself doesn't have an income and sometimes actually has a carrying cost for, for investing in it. So within the portfolio, we have very, very low direct exposure to individual commodities. However in the portfolio there are companies that are gold miners, There's also critical minerals companies that we invest in, but no direct holdings in gold itself.

Thanks, Sam. And we might just pick one more in the interest of time. How risky are US bonds and is AustralianSuper investing in the US bond market?

It's actually, it's an interesting question because there when you do look at the bonds around the world, there are credit ratings for each of the bonds. So in our fixed interest portfolio, we do have a mix of Australian bonds as well as international bonds and it's in general the portfolio has a mix of about 50% Australian bonds and then 50% of bonds around the world. So it is a very diversified aspect and you do see some volatility in in bonds based on interest rate cycles as well as inflation. So overall we look at bonds itself as a very defensive asset class, which is relatively stable over time. However, we do manage those risks in terms of making sure that the portfolio is diversified and mixed and having a mix of bonds around the world. But that is the one aspect that the fixed interest team does look closely at is those whether it's political risks or even policy risks when it comes to fiscal policy or monetary policy. That is an aspect that goes into our analysis and structure of the bond portfolio.

Thank you, Sam, some really great insights. As always. Thank you for sharing your expertise with our members this evening. We might leave it there for now.

Thank you to everyone who's been submitting your questions into the Q&A during tonight's session. And we hope that you join us again for another webinar soon. Bye for now.